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1 

2 

3 

1 

2 

3 

4 

5 

6 

The 

Canadian  Banking  System 

i8 1 7-1 890 


OP  TICK 

American  Economic  Association 


Vol.  X.Xos.  l,2\-;5.{ 


} 


-Six  NUMUKHa  4  tia«, 

PkICK  14.00  A    TKAK. 


THE  CANADIAN 

BANKING  SYSTEM 

1817-1890 


BT 


ROELIFF  MORTON  BRECKENRIDGH.  Ph.  I). 

Sometime  Seligman  Fellow  in  Economics, 
Columbia  College 


January,  March  and  May,  1895  ,  ■^^.'^■"^".^  <^, 


ii    <^>'  iv  I.  ^ 


Ameiucax  Ecoxomic  Association    '''"^''*''''    ^ 
nv  Macmii.i.ax  ct  Compa.w 

SEW    YoiiK 


I.OXUOX:    SWAN  SO.VNE.NSCIIEIN  &   CO. 


Coi'vuKiiiT,  \m,  )tv  Amekuan  E(  o.NOMit  Association. 


« 


BALTIMORE: 
From  tiik  Phess  op  GuciGENHEiMErj,  Weil  &  Co. 

Win. 


PREFACE 


If  any  were  required,  a  reason-perhaps  a  suffi- 
o^Mit  reason-for  the  present  investigation  might  be 
offered  in  the  circumstance  that  an  essay  to  present 
ma  systematic  and  fairly  thorough  manner  tlie  facts 
with  winch  1  have  attempted  to  deal,  has  never  yet 
appeared  „x  print.  The  growth  and  improvement  of 
he  bankn:g  system  are  parts  of  the  commercial  and 
egisla  .ve  history  of  Canada  even  less  cultivated 
han  the  broader  field  of  its  economic  history.     Yet 

toirrvoir'/'^'^'^''^"""^^  ^^^-^^^  ^>' »« — 

to  be  devoid  of  mterest;  the  results  in  some  respects 
are  unique:  and  where  it  is  now  carried  on  the  Cana- 
dian system  of  banking  is  believed  to  be  productivt 
of  the  highest  possible  advantages 

wiu/Thri  T'"  ''"'^  "'"  '^  '^""'^  ^»  relation 
with   the   banking   situation  of  the   United  States 

Observers  in  all  quarters  have  noticed  the  growing 

necessity  for  reform  in   the  currency  and  banking 

ystem    of    this    country,    and    have    remarked    the 

demonstration  of  the  necessity  in  the  frightful  crisi! 

precipitated  by  distrust  in  the  value  of  the  <.i  rency 

commonly  used.     They  have  noticed  also,  especially 

among  those  who  are  most  deeply  interested  in  the 

organization  of  credit,  the  growing  conviction  of  thi! 

necessit3--a  conviction  of  which  the  last  and  most 

significant    expressions  are   the  resolutions  adopted 

on  the  nth  October.  1..4,  by  the  American  Bank^^^ 


0 


Preface 


Association,  in  convention  ass«>njl)led  ut  Baltimore. 
It  is  j)ossil)l(',  at  least,  that  from  some  account  of  the 
Canadian  hanking;'  system  an  American  will  obtain 
instructive  contrasts,  as  well  in  histoi-y.  as  in  present 
organization  and  methods  of  operation,  to  the  system 
of  banking  and  bank  legislation  which  has  obtained 
in  the  United  States. 

Of  tlie  few  short  summaries  or  historical  sketches 
hitherto  published,  the  gi-eater  nund)er  are  unrelia- 
ble, even  in  respect  to  the  facts  which  are  included. 
The  principal  legal  text  on  banking  under  Dominion 
legislation  is  not  exemi)t  fi'om  errors  where  the 
author  has  digiessed  to  history,  while  certain  others, 
who  likewise  affected  the  cursory  style,  have  com- 
mitced  still  more  mistakes.  Better  types,  or  worse, 
of  the  current  misstatements  than  are  in  the  historical 
survey  of  Canadian  banking  prepared  for  the  Statis- 
tical Year  Book  of  Canada  for  IS'.):^,  could  not  be 
found.  And  this  is  a  public  document  issued  by  the 
Department  of  Agriculture.  But  to  indulge  in 
polemic,  or  to  correct  such  carelessness  or  untruth 
specifically,  would  be  seriously  to  abbreviate  the 
treatment  of  truths  relating  to  the  system.  It  has 
been  necessary  to  restrict  this  essay,  as  far  as  possi- 
ble, to  exposition  alone. 

The  principal  sources  of  the  narrative  are  in  the 
public  documents  of  the  several  British  North  Amer- 
ican provinces  and  of  the  Dominion  of  Canada.  The 
statutes  passed  from  year  to  year  ought  to  be  named 
first,  and  then  the  legislative  or  parliamentary  docu- 
ments of  Upper  Canada,  Lower  Canada.  Canada, 
New  Brunswick,  Nova  Scotia,  and  the  Dominion  of 
Canada.  Since  the  confederation  of  the  provinces  in 
1867,  the  collected  debates  of  the  Parliament  of  Can- 


Pirfticc  M 

,ul„_tl,e  Han».ir,rs  ,q„,rts-],„vi.  I„.,„  ,„■  ,„,,.,„, 
"or  t„  „,a,  time,  ,l..i.„t..s  w.to  ..epoK,.,!  „„|v  i„  tl  « 

:;:;;.':.*;•« <■  van„us  j„un„.,»  „„.„,,,  „:,;,^„' 

an  1  l,„  oil,,.,-  ,„,est„.ns  arising  „t  noaHv  ,.v,.,.v  si,,.... 
of  tl.c  ,n.„„ry.  .M,.,„„i,,,  l.i,.„,.,„.lm.s.  [u,,!  ,„is..o:i;. 
noous  i„st.„.,o„l  w,„.ks  l,„v..  aiso  !„..„  „,„,„i„„„ 

ami    o,.  ,nl„„„„„on  as  to  the  p.actical  working  „f 
heCana,l,a„  l,a„ki„ssyst,.m,I  am  i„,lei,t..,i  ,,^1,0 
ourteous  an,l  generons  assistance  of  the  many  Cana- 
da     i,anke,..s  to  who,,,  my  „„e..ies  have  heen  ,„, 
^^  .thout  tl,e„.  1„.1„  tl,e  task  of  resea-oh  would  have'. 
l«e„  ,m„,easurably  mo..e  severe.    Kspeeial  ohligatt,, 
must  ...acknowledge,!  to  Messrs.  Jas.  Steveu.s!:,   B 
E.  Walker,  George  Burn,  H.  S.  Steven  an<l  Will  ■„„ 
Munro.    To  the  Honoi-able  George  E.  Foster  iVc 
M,n,ster  of  Finance  and  Receiver  Genc-al ,  'to  J.' M 
Courtney,  tsqu.re,  Deputy  Minister  of  Finance,  and 
to  members  of  the  permanent  staff  of  the  Finance 
Department,  to  Mess,.s.  Martin  O.  Griffin,  F.  Blake 
trofton   and  W.  T.  R.    fteston,  Librari;ns  of  the 
Library  of  Parliament  and  of  the  Legislative  Libra! 
ru,s  of  Nova  Scotia  and  Ontario  respectively  •  and  to 
the  Editing  Committee  of  the  JonLl  of  L  Cana 
.han  Bankers'  Aesoriation,  who  have  un/ertaken    le 
pubhcat,on  of  the  essay  in  Canada,  are  also  due   he 
hear  .est  acknowledgments  for  assistance  of  va,ious 


OcTOHER,  1894. 


R.  M.  B. 


TAHLK  OK  CONTENTS 


JADA 


CltAI'TKH    I.— InTRoDITTION 

Captku  II_T„.  Ear,.v  Bank,  m  Lowkr  Can. 

5,1.— TJie  First  Hanks 

g2.— The  First  CliarterH ." 

§|i.-Cl.araoti.ri8tics  of  the  Karly' Jiank'ing'syHtem! 

M.— Knvironmcnt  of  the  J^anks 

g-'i.— Practice  of  the  Banks 

§ti.— Further  i.egislation 


I'AOK 

■    i:i 


-2 
27 

3.-) 


CiiAPTKu  III._u..,.Ku  Canada,  ]817-18.'}» 


fpiin«i"n,  l8;;o-l837 

I  '."-Tr!.''"'  Reguhition  of  Colonial  Hank  CharteVs! 

i?l...— Practice  of  the  Banks. 


^^-^-'^^l^^'^P^'^^^on  of  Specie  Paymen"t8an<Vihe  Crisis'of 


i«;i 


44 

'),'» 
58 
«>1 
(15 
ti7 
(I! 
70 

87 


Jla.-EfTects  of  the  Crisis  un,l  Suspension   .".'.".'."" o. 

felb.— Incidental  Details 


lOfi 


the  Dollar  Note  Cir- 


Ciiapter  IV.-Pkovince  op  Canada,  ]84I-18o() 

^li"~Th'  f ''"^''^.  '''"'  ^'■°''^^^^''  ^^y  Lord  Sy.lenham  . . . 
5^is.— Ihe  Legislation  of  1.S41  and  1843 

§l!».-nank  Returns  for  1841;  the  Bank"  oV  BrVtish' Non"l 

America  and  La  Banque  du  Peuple. 
2(1.— Correspondence  with  respect  to 

culation 

i?2I.— Imperial  Regulations  of  184<i. . 

§22.-1847-1850 ^--^ 

128 

CHAPTKR  V.-Provincic  OF  Canada,  ]8.50-18(;7 
§23.-The  Free  Banking  Act  of  IS.jO  .... 
|24.-Amendinents  and  Supplementary  Measures!  '.Z'.'.' "  u 

fe2o.— Faults  of  the  System . 

§2(i.  -Statistical  View  of  the  Free  Banks." ..'..'.'.]]'.'.  us 


l()f> 
113 

120 

122 


10 


Table  of  Contents 


§27. — Repeal  of  the  Act  to  Establisli  Freedom  of  Bankin<.', 

and  Disappearance  of  Banks  organized  under  it. . . .  joD 

§2S, — Continuation  and  Amendment  of  Bank  Charters 153 

§20.— ]S57-18():? lo8 

i;.">l».— Faihire  of  the  Bank  of  Upper  Canada 1<)5 

^-■51. -The  Provincial  Note  Act  of  ISGC) 177 

§:52.— ElTects  of  tiie  Provincial  Note  Act 180 

NoTK.— Relation  of  the  Bank  Note  Lssue  to  the  Prerogatives 

of  the  State 190 

Chapter  VI. — New  Brunswrk  and  Nova  Scotia 

p:5.— The  Bank  Charters  of  New  Brunswick 200 

g;i4.— Nova  Scotia 205 

§35  — Relation  of  Bank  Legislation  in  the  Maritime  Prov- 
inces to  that  of  the  Dominion 211 

Note. — The  Treasurv  Notes  of  the  Province  of  Nova  Scotia.  215 


219 
222 

231 
2:?9 
245 
254 
258 


Chapter  VII.— Bankin(;  Reforms,  18()7-1S71 

§3(). — Preliminary  Pleasures 

g;{7. — The  Question  of  Banking  Reform 

§38. — The  Case  against  Bank  Circulation  secured  by  Pledge 

of  Bonds , 

§39. — Mr.  Rose's  Banking  Scheme 

§40. — The  Banking  Policy  of  Sir  Francis  Hincks 

§41.— The  "Act  respecting  Banks  and  Banking,"  1870 

§42.— The  "Act  relating  to  Banks  and  Banking,"  1871 

Chapter  VIII. — Banking  Under  the  Confederation,  18(57  89 

§43.— The  Expansion  between  1867  and  1873 2(54 

§44.— Depression,  1874-1879 272 

§45.— Bank  Failures  and  Losses,  1874-1879 279 

§46.-The  Bank  Act  Revision  of  1880 288 

§47.— Dominion  Note  Legislation,  1872-1880 295 

§48.-1880-1889 297 

§49.— Bank  Failures,  1883-1889 305 

Chapter  IX.— The  Revision  of  1890 

§50. — Demands  for  Reform  and  their  Csnses 315 

§51. — Discussion  Preceding  Parliamentary  Action 319 

§52. — Reforms  Adopted  by  Parliament 327 

§53. — Summary  and  Review 351 

Chapter  X.— On  the  Prescnt  Working  of  the  Sy8te.m 

§54.— Characterization  of  the  System 360 

§55.— The  Principle  of  Large  Banks. .  -X^. 365 

§56.— The  Principle  of  Branch  Banking 375 

§57.— The  Canadian  System  of  Note  Issue 386 


K 


Table  of  Contents  n 

I'm  ■"?! "^  ^"'^^'*'""  ^"^>  the  Depositor!  '".".■; ^ 

K~Thp  ^•'^.'•^holder  and  Bo.  rower  of  the  Canadia'n  'jJank  440 
fef>2.-rhe  Business  of  Cana.lian  Banks. . .     V  ]-!> 

;^ "*'-  " 

APPENDICES 

'■~™  ufrChaft'''f  ;r"'J''''^'^^'  ^^^  LiabiliHesand  Assets 
reported  to  the  Government,  on  the  :10th  June,  1807;  the 
..ist  December.  1SG8-1803,  and  the  noth  June.  1894  ! ! . .      4-,,) 

''•~^^:^i^'^l}^  ^*^^--»t«  of  Liabilities  and  Assets 


"^■'"In!i'^/^°T'n^^T'^  '^"'"^  °^  ^"^ot^^  '"  Circulation  at  the 

end  of  each  Calendar  Month.  January.  1870.  to  June,  1804  470 

I^  •— Bibllographv 

471 


The  Canadian  Bankin.cr  System,  i8 17- 1890 


CHAPTER  I 

INTRODUCTION 
The   economic   character    of    banking    transactions 
varies  little,  wherever  they  may  be  concluded.     To 
perform  the  functions  of  discount,  deposit  and  note 
issue,    to   exchange    rights    to    demand    money    for 
money,  money  for  rights  to  demand  it,  and  rights 
to  demand  money  for  other  rights  to   demand  it- 
from  one  point  of  view,  that  is  the  whole  of  banking 
Banking  systems  differ,  not  so  much  in  the  character 
of  their  economic  services,  as  in  the  degree  of  per- 
fection with  which  those  services  are  performed,  the 
methods  of  accomplishing  them,   the  principles  on 
which  banks  are  organized,  the  powers  confirmed  to 
banks  by  statute,  and  the  obligations  and  restrictions 
imposed  upon  them— the  manner  and  completeness  in 
short,  of  the  fulfilment  of  banking  functions.    Whe're 
as  in  the  territory  which  forms  the  present  Dominion 
of  Canada,  banking  has   been  subject  to  special  en- 
actments,   since    the    time,    practicallv,    of    its    first 
introduction,  it  is  possible  to  find  in  the  statutes    or 
to  infer  from  them,  a  tolerably  accurate  idea  of  that 
complex  of  business  methods,  principles  of  organiza- 
tion and  legislative    regulations    which   make  up  a 
system  of  banking.     The  purpose,  therefore,  of  this 
investigation  will  be  to  trace  the  course  of  Canadian 


14 


The  Canadian  Banking  Si/sle»i,  1817-1890 


banking  legislation  from  the  grant  of  the  first  bank 
charters  t<»  the  Bank  Act  of  1890. 

Tlie  purpose  thus  stated  avoids  the  implication  of 
an  effort  to  give  the  banking  history  of  Canada, 
while  it  by  no  means  precludes  whatever  reference 
to  the  political,  economic,  or  banking  history  of  the 
country,  may  serve  better  to  exi)lain  the  measures 
adoi)ted  by  legislatures.  Government,  post  office, 
or  other  savings  banks,  or  the  so-called  land  bank- 
ing, will  not  be  treated,  for  the  inquiry  is  limited  to 
what,  in  the  English  sense,  are  denoted  by  the 
simple  expression  "banks."  and  what,  in  Canada, 
have  been  joint-stock  banks  of  issue,  discount  and 
deposit,  incorporated  or  recognized  by  local  legisla- 
tive authority. 

The  Parliament  which  now  has  exclusive  juris- 
diction in  matters  incident  to  banking,  incorporation 
of  banks,  and  the  issue  of  paper  money,  is  of  as 
recent  origin  as  the  Dominion  of  Canada  itself. 
Thirty  years  ago,  neither  were  more  than  the  pro- 
posals of  a  group  of  energetic  and  far-seeing  colonial 
publicists.  The  territory  now  included  in  the 
Dominion  was  cut  up  into  six  or  more  different 
jurisdictions,  those  important  for  our  purpose  being 
the  provinces  of  Canada,  Nova  Scotia,  and  New 
Brunswick.  Fifty-four  years  ago,  the  Union  of  what 
are  now  the  provinces  of  Ontario  and  Quebec,  had 
not  been  accomplished,  and  these  parts  of  British 
North  America  were  separately  governed  as  the 
provinces  of  Upper  Canada  and  Lower  Canada. 
The  first  part  of  the  study,  accordingly,  will  be 
based,  not  on  the  uniform  legislation  of  a  great 
Dominion,  but  on  the  independent  and  somewhat 
diverse  statutes  of  four  distinct  colonies.     But  for 


Introduction  jg 

reasons  which  will  be  explained  i„  due  time,  events 
in  the  two    Canadas    and    in    the   late   Province  of 
Canada  are  facts  more  ("ssential   to  a   right  under 
standing-   of   what  may    be   called  the    national  era 
ot  Canadian  banking  legislation,  than  the  course  of 
affairs  ,n  the  maritime  provinces  of  Nova  Scotia  and 
Ivew    Brunswick.     So   whil,.  significant   phenomena 
m  the  latter  colonies  should  not  be  neglected    the 
earlier  inquiry  must  be  mainly  directed  to  the  de 
velopment  of   banking   legislation   in  the  Canadian 
provinces.     The  study  will  therefore  be  rightlv  en- 
titled what  it  is.  as   well  i„   its  first  part.  a.  in  the 
last. 

Canadian  banking,  both  in  the  .^arlier  periods  of 
Its  growth   and  the  present  stages,  has  often  been 
compared  to  Scotch  banking.     The  analogv  is  better 
no  doubt,  than  that  between  Canadian  banking  and 
the  few  other  systems,  the  statutory  regulation  of 
which,  while  establishing  safeguards,  has  not  ham- 
pered  the  prosecution  of  banking  business  in  all  its 
branches.     It  is  peculiarly  true  of  the  Scotch  banks 
that,  untrammelled  by  restrictions  and  unexploited 
by  government,   they  acquired   what  are  still  their 
distinguishing  characteristics,  in  the  exercise  of  all 
the  functions  which,  according  to  the  Anglo-Saxon 
Idea,  belong  to  banking.     The  three  great  conditions 
of  their  development  were  freedom,  competition,  and 
the  necessity  promptly  to  perform  banking  contracts. 
The  result  was  a  system  of  banking  whose  principal 
features    were    the    small    number    of    banks,    their 
arge  capitals,  establishment  and  operation  of  branch 
banks,    competitive    issue    of   notes  on    the  general 
credit  of  parent  banks,  payment  of  interest  on  de- 
posits, and  regular,  frequent  conduct  of  exchanges 


16 


The  Cnnadinn  Banking  System,  1817-1890 


between  the  banks.  It  is  true  that  both  in  the 
comparative  freedom  of  its  development,  and  in  the 
characteristic  features  which  it  displays  to-day,  the 
Canadian  system  is  very  like  the  Scotch. 

Still,  the  economic  needs  and  opportunities  which 
led  to  the  introduction  of  banking,  and  the  policy  of 
government  towards  this  form  of  economic  activity 
have  not,  of  course,  been  exactly  the  same  in  one 
country  as  in  the  other.  It  is  not  to  be  expected  that 
the  analogy,  however  close,  rhould  be  complete. 
Scotch  banking  is  a  development  which  may  be  de- 
scribed, with  a  tolerable  accuracy,  as  indigenous.  In 
Canada  the  needs  were  native,  but  the  banking  sys- 
tem was  borrowed,  copied,  transplanted,  if  you  like, 
from  countries  where  it  was  already  established. 
Eight  of  the  present  Scotch  bunks  were  originally 
private  partnerships.  All  but  four  of  the  thirty- 
eight  Canadian  banks  were  from  the  outset  corpora- 
tions created  by  legislatures  or  by  Parliament.  By 
Sir  Robert  Peel's  measures  of  1845,  the  freedom  to 
issue  notes  was  abolished  in  Scotland,  and  thereby  a 
monopoly,  both  of  the  issue  and  of  other  depart- 
ments of  banking,  established  for  the  banks  then  in 
existence.'  Canada  has  preserved  not  only  compe- 
tition between  the  old  banks,  but  also  the  possibility 
to  found  "ew  ones,  while  the  effective  limitations 
upon  uncovered  note  issue  by  those  to  whom  the 
power  is  confirmed  are  not  statutory,  but  economic. 
There  is  no  requirement,  as  in  Scotland,  that  gold 
shall  be  held  in  the  banking  reserves  to  an  amount 
sufficient  to  cover  circulation  in  excess  of  a  certain 


'Evidence  taken  before  the  Select  Committee  of  tiie  House  of 
Commons  on  Banks  of  Issue,  London,  1875;  Replies  to  questions 
954  and  05o. 


Intnubidiun 


17 


lixed  luuount,  and  duriiifj^  tlic  last  forty  years  tlic 
total  amount  of  notes  outstanding  lias  nover  readied 
the  limit  to  which  the  banks  might  legally  issue. 
The  regulation  of  the  hank  note  currency  of  Scot- 
land hy  the  Act  of  184."),  was  prompted  largely  by 
the  purpose  of  securing  in  that  the  same  Huctuations 
as  would  occur  in  a  metallic  circulation:  the  precau- 
tions adopted  in  Canada  were  designed  merely  to 
insui-e  the  immediate  convertihility  of  bank  notes  at 
all  times  and  places,  and  to  make  their  ultimate  pay- 
ment certain.  In  their  business  one  tinds  still  other 
differences.  The  only  variety  of  Canadian  advance 
similai- in  form  to  the  Scotch  "cash  credit"  is  the 
overdrawn  account,  whicli  bankers  are  inclined  to 
discourage,  although  in  a  different  form,  especially 
in  tlicir  business  with  farmers,  graziers  and  drovers, 
the  Canadian  banks  lend  freely  for  many  (.+'  the  i»ur- 
poses  which  the  --cash  credit"  has  served  in  Scot- 
land. Further,  the  banking  competition  in  Canada 
is  more  varied  and  intense.  It  i)re vents  the  adjust- 
ment of  the  mininuim  rate  of  discount  and  the  maxi- 
mum interest  payable  on  deposits,  to  which  Scotch 
banks  regularly  agree,  and  by  which  they  stand. 

In  that  banking  operation  that  so  immediately 
interests  the  whole  public — the  issue  of  notes  to  cir- 
culate as  money — what  was  originally  substantial 
identity  has  been  altered  by  legislation.  The  early 
freedom  and  simplicity  of  the  Scotch  note  issue  has 
been  taken  away.  Because  the  Act  of  184;"),'  as 
already  indicated,  requires  them  to  hold  gold  in  their 
banking  reserves  equal  to  the  circulation  in  excess  of 
their  authorized  issue,  the  Scotch  b   ..ks  can  no  longer 

'S  and  «i  Vic,  ca]).  3s,  An  Actio  rt"<:nlate  tlie  Issue  of  Bank  Notes 
in  Scotland. 


18 


The  Cantiiliini  lionkintj  S;/s/rm.  1817-1800 


m  I 


moot  the  temporary  but  jteriodieal  dt'inands  for  ex- 
pansion in  the  hank  note  currency  witliout  cost  or 
inconvenience  to  themselves.  Twice  eacli  year  must 
they  incur  tlie  expense  of  importing  (juantities  of 
gohl,  leaving  the  parcels  in  their  vaults  unopened 
and  unused,  and  exporting  them  again  when  the  cir- 
culation has  fallen  to  the  lower  level.  But  the  chief 
burden  Avhich  is  thus  imposed  \\\n)U  the  Scotch  banks 
lies  in  this,  that  when  th(>  c'rculation  reaches  a 
certain  i)oint.  its  further  temporary  expansion  is 
effected  only  at  the  exi)ense  of  dejjleting  loanable 
funds  to  a  like  extent.  Such  restrictions  the  Cana- 
dian banks  have  escaped.  They  are,  to.  be  sure, 
subject  to  statutory  i)rovisions  as  to  the  total  issue  of 
each  bank,  the  redemption  of  notes  at  par  in  every 
part  of  the  country,  the  maintenance  of  a  common 
fund  to  guarantee  the  circulation,  and  the  i)ii(H'  lien 
of  the  note  holder  upon  an  insolvent  bank's  estate. 
To  supply,  however,  the  recurrent  need  for  added 
currency  is  to  them  a  cause  of  no  real  cost,  while  to 
a  much  greater  extent  than  in  Scotland,  it  is  a  source 
of  direct  advantage.  It  is  important  to  note  that  in 
both  countries  the  public  share  this  advantage  ; 
through  elastic  issues  upon  their  general  credit, 
banks  are  enabled  to  minimiz(>  fluctuations  in  the  rate 
of  discount,  to  reduce  or  waive  charges  that  other- 
wise they  would  be  obliged  to  make,  and  also  to 
maintain  branch  offices  at  small  points  which  other- 
wise would  be  inevitably  deprived  of  banking  facili- 
ties. 

After  all,  however,  what  we  particularly  need  to 
know  in  judging  of  a  currency  is  comprised  in  the 
questions.  Is  it  ultimately  secure  ^  Is  it  innnediately 
convertible  ?   and,  Is  it  elastic  ?      Whether  it  relates 


^^-.- ■ 


IntfOiliirlinH 


19 


to  the  bank  notes  of  Canadii  or  of  Scotland,  each  of 
these  queries  may  he  answered  in  the  affirmative; 
that  is  to  say,  each  country  lias  a  safe  and  inexpen- 
sive currency  at  all  times  adequate  in  volume  and 
never  inflated. 

When  we  come  to  view  tlie  services  which  each 
country  has  derived  from  its  hankin«,'  system,  tlie 
analogy  reappears.  In  Canada,  a.s  in  Scotland,  the 
history  of  banking-  records  singularly  few  frauds 
upon  the  currency,  and,  so  far  as  their  creditors  were 
concerned,  the  losses  inflicted  by  insolvent  bankers 
have  been  remarkably  slight.  In  order  to  reform  the 
system,  it  never  became  necessary  to  maim  it:  in 
neither  country  has  banking  developed  the  abuses 
that, 

"  diseases  ilespenite  jirowii 

I'.y  desperate  :ipi)liance  are  reliev'd, 

Or  nut  at  all." 

Both  Scotch  and  Canadian  banks  collect  with  aston- 
ishing elJiciency  the  disposable  capital  of  the  com- 
munities in  which  they  work,  and  utilize  it  in  assist- 
ance   of    commercial,    industrial    and    agricultural 
enterprise.     Both  enjoy  the  firm  and  judicious  confi- 
dence of  the  people  whom  they  serve.     Both  have 
successfully  built  upon  the  foundations  of  their  capi- 
tals   great    structures  of    credit    from    whicli    their 
clients   get   full   benefit.     Both    groups   conduct   the 
multifarious  exchanges  of  domestic  and  foreign  com- 
merce and  make  them  easy,  quick   and  cheap.     It 
may  be  said  that  these  are  the  tasks  of  any  banks. 
So.   indeed,   they  are.   l)ut    '-in    all   economical   and 
political  things,  questions  of  magnitude  and  intensity 
are  of  vital  importance:  the  ([uestion  very  often  is, 
not  what  color  a  thing  is.  but  what  shade  of  color."' 
'  Walter  Hagehot,  Evidence  ut  s>ipra,  Reply  to  .luestiun  7,97ti. 


20 


TItf  Citnadiioi  /Idii/n'/i;/  Sf/s/oi,  ISIT-ISOO 


The  rcjil  lulvuntii^es  of  fitluT  systoin  appear  only 
after  it  is  seen  liow  thoroughly  has  its  commuiiitN- 
a('(|uire(l  the  depositiiiji^  hahit:  what  support  do  hank 
eustoniers  ^et  in  times  of  crisis  as  well  as  in  seas(tns 
of  jirospcrity;  how  nearly  is  the  I'ate  of  interest  uni- 
form throughout  the  eountiy;  and  how  low  have 
charges  for  other  hanking  services  heen  reduced. 

Turning  now  to  consider  the  scientific  discussion 
evoked  hy  each  system,  one  no  longer  sees  I'cscm- 
hlance,  hut  contrast,  and  that  of  the  most  mark<'d 
sort.  Among  the  hanks  of  the  old  world  none  luivi- 
I'eceived  higher  praise  for  their  [)ractical  services,  or 
more  thoi'ough  api)roval  for  the  theoretical  excellence 
of  their  hanking  system,  than  the  hanksof  Scotland. 
Sir  Walter  Scott  wrote  in  defence  of  the  system. 
CourcelleSicneuil  admii'cd  it.  Di".  Adolph  Wagner 
has  praised  it.  And  in  evei-y  ti'eatise  on  hanking 
theoi-y  it  occupies  an  imi>ortaut  place.  But  outside 
of  a  few  i)ul)lished  addresses,  occasional  pamphlets, 
fugitive  magazine  articles,  and  the  newspaper  dis- 
cussion of  measures  i)roposed  to  Parliament,  the 
Canadian  hanking  system,  in  scientific  works  at  least, 
lu.s  remained  unnoticed,  undescrihed,  unjndged. 
Ahroad  it  has  heen  easil.y  dismissed  as  ■•colonial." 
At  home  it  may  well  he  that  the  veiy  merits  of  the 
Canadian  hanks  have  heen  the  cause  of  this  neglect. 
To  say  that  Canadians  do  not  api)reciate  their  hank- 
ing sj'stem  would  he  untrue;  they  have  repeatedly 
refused  to  give  it  up.  liut  only  of  defective  institu- 
tions do  men  complain  and  agitate  for  reform;  good 
ones  they  often  accept  as  matters  of  course. 

Tlie  purpose  of  this  monograph,  however,  is  to  de- 
scrihe  facts  relating  to  the  Canadian  hanking  system, 
rather  than  to  eulogize  its  merits.     It  is  proposed  in 


i 


Jiilrdihirlion 


21 


'i 


\ 


the  next  two  cliuptcrs  to  examine  the  (>rtrliei-  legisla- 
tion of  the  Caimiliun  eoloni.s  and  the  f(.rces  at  work 
in  its  (leveiopiiieiit.  and   to   make  some  study  of  tiio 
crisis  of  ]S:}7  and  tiie  snsi)ension  of  specie  payments. 
In  subsequent  (dinpters  th(.  reforms  emimdied  in  tlio 
iMiidv   chart.-rs   j.assed   j.rior  to  ISCT  will    h(.   pointed 
(•ut.  and  the  efforts  to  introduce  --free  hankin^^••  as 
well  iis  the  reasons  for  their  failur-.  will  1.,.  det^iiled, 
lu  a  fifth  chapter  the  lej^jsiation  of  Nov;.   Scotia  and 
New  Hrunswiek  will  receive  the  necessary  nttention. 
After  ISO?  the  uniform  nnd  ^-enernl  P.nnk  Actsof  the 
I)onu-ni(m  will  need   exteml(>.I    nothv.     At    the   same 
tinu'   the    various  attempts  to  alter  the  (dmracter  of 
the  system  will   he  dcscrihed.   together  with   the  rea- 
sons  for  the  jmlicy   which    i.revailed:  the  growth   in 
the  number  and  resources  of  the  banks  will  be  Mlus- 
trated.  and  from  the  banking  historv  such  facts  will 
be   given    as    will    explain,    in    i.art.    the    nu'asures 
adopted  by  Parliament.    At  the  (dose  of  tlie  historical 
part  it  is  proposed  to  examine  with  greater  thorough- 
ness than  was  previously  possible,  the  characteris'tic 
.features   of  the   present   Canadian  banking  system, 
and  some  of  its  practical  workings. 

Before  beginning  to  trace  the  development  of 
seventy-seven  years,  we  may  so  far  anticipate  as 
to  quote  certain  American  comments  upon  the  result: 
"We  know  of  no  system  that  more  closelv  con- 
forms to  the  best  and  broadest  economic  ideals  of 
banking:  none  better  calculate.!  to  afford  the  largest 
possible  public  accommodation:  nomnu'tter  adapted 
to  insure  a  safe  utilization  of  the  surj.lus  balances  of 
the  people:  and  none  better  (jualiHed  to  supi)ly  the 
daily  fluctuating  wants  of  trade  with  a  safe  and 
convenient  circulating  medium."' 

N.  Y.  Daily  Coniiuerciiil  Ilullcfin,  Istli  .Taniiarv,  ISDO. 


CflAPTKK  11 


THK  EARLY   liANKS  IN  LoWKK  CANADA 


Jjl — Till-:    I'lUST    HANKS 

TnK  cause  of  tlu;  lirst  cousidriiiltlc  rfTort  to  cstnl)- 
lish  a  hunk  «>f'  issue,  discount  iiiul  deposit  in  tlic 
}irosent  province  of  (^)uel)ec.  was  the  scarcity  and 
variety  of  sjK-cie  in  circulation;  tiie  scene,  the  city  of 
Montreal:  the  time.  ISth  ( )ctoh(-r.  171>2.  In  the  otticial 
iidzclh'  of  that  date  ajtpeared  the  following  circular: 

"Tlie  niiilcrsidriu'd,  liaviiij;  expfrii'iici'il  jjri'ut  hicoiivonicnce  in 
Cnnada  from  tlu'  (It'lh'iciH'y  of  specie  or  floine  nthi-i'  medium  to 
reprcBeiit  tlic  increiisiii^'  ciicidatioii  of  tlu'  coiuitry,  as  well  as  from 
the  variety  of  the  money  now  current,  ami  knowing  the  freijnent 
loss  and  jreneral  dililciilty  attending  receipts  and  i)ayment8,  have 
formeil  tlie  resolution  of  establishing'  a  I'.ank  at  Montreal,  under 
the  name  of  the  'Canada  IJanking  Company.' 

"The  business  i)ropo8ed  by  the  comp;iny  and  usually  done  1)y 
similar  establishnients,  is — 

"To  receive  deposits  in  cash. 

"To  issue  notes  in  exchanj.'e  for  such  deposits. 

"To  discount  bills  and  notes  of  hand. 

"To  facilitate  business  Ity  keeping;  cash  accounts  with  tiiose  who 
choose  to  emjiloy  the  medium  of  the  Hank  in  their  receipts  and 
payments. 

"It  is  proposed  to  extend  the  operations  of  the  l?ank  to  every 
part  of  the  two  provinces  where  an  a^ent  may  be  judgeil  necessary; 
and  it  is  iiresumed  that  the  institution  will  be  particularly  bene- 
ficial to  the  commerce  of  and  intercourse  with  the  Upper  Province. 

"(Sijfued)       PnvN,  Ei.mck  &  Inoi.is, 
"Tonn,  M((iii.L<!c  Co., 
"  FoKsvTii,  Richardson  &  Co." 

The  firms  who  issued  the  circular  did  not  carry 

out  their  plans.     A  private  bank,  chiefly  of  deposit, 

was  the  onh'  result  of  their  endeavors.' 

'James  Stevenson,  "The  Currency  of  Canada  after  the  Capitula- 
tion," Transactions  of  the  Literary  and  Historical  Society  of  Que- 
bec, 187()  7,  p.  ll'L'. 


The  First  thnks 


tj:{ 


'I'll*'  uiisiitist'iictory  coiiditioii  of  tin-  ciiiTciicy  coii- 
timu'il.  jiK';;riivat»'(l  soiiu'wluil  l»y  tlic  rxiturt  of  n;()|,| 
t(t  the  rnitcd  States.  Tlic  rates  in  tlic  colonial 
iiioiicy  of  accomit.  at  which  certain  American, 
British,  l'ortn<;uese,  Kicnch  and  Spanish  coins  were 
le^al  tender,  were  altered  in  I7l».'.  and  the  Ic^al  ratio 
of  ;^old  to  silver  somewhat  hettered  in  order  to  keep 
the  j^'old  in  the  country.  Some  i-elief  was  aM'orded 
hy  the  measure,  hut  the  connnerce  of  the  colony  was 
^rowin^.  The  enterpi'ise  of  Scotch  and  Knjjflish 
inuni^rants.  iis  well  as  of  refugees  from  the  former 
colonies  south  of  Canada,  had  assisted  also  in  the 
considerahle  a^'ricult ui'al  development.  The  new 
activities  needed  facilities  for  exchanjjje.  and  tlu^ 
country,  as  yet.  could  ill  atl'ord  the  luxury  of  a 
metalli(^  circulating  medium.  A  second  attempt  to 
found  a  hank  of  issue  occurred  Hth  March.  1S(>7,  at 
a  meetinj^  in  the  city  of  (^uehec.  assembled  in  i"e- 
si»ouse  to  a  call  in  the  (Jurhrc  (fdzcffc  of  the  4th 
March.     Hut  no  hank  was  established. 

Tho  next  year,  in  February,  a  i)etition  of  divers 
inhabitants  of  tlie  cities  of  (.Quebec;  and  ^Montreal, 
praying  to  be  incorporated  under  the  title  of  the 
'•Canada  Bank,"  was  presented  to  tho  provincial 
legislature.'  A  special  committeo,  to  whom  the 
matter  was  referred,  reported  favorably  with  a  bill. 
Many  objections  were  offered,  most  of  them  ill  taken 
from  a  more  modern  point  of  view,  and  the  bill  failed 
to  pass. 

From  July,  1812,  until  the  latter  months  of  1815, 
the  Canadian  colonists  us(>d  a  currency  composed  for 
the  most  part  of  promissory,  legal  tender  "Ai-my 
Bills"  issu<'d  by  the  government  as  a  financial  aid 

'James  Stevenson,  >tt  suprx,  p.  13i'. 


2i 


The  C<ni(t'/i(ni  Bankinri  Si/stem,  1817-1890 


in  tlie  war  with  the  United  States.  Tins  curreney, 
thouji^-h  sli<;htly  (h'preciated.  had  tlie  nu-rit  of  being 
uniform  and  expi'cssed  in  tlie  convenient  (h'noniina- 
tions  of  tlie  eoJoni.U  currency.  Bills  for  s'i'*  and 
over  bore  interest  at  ('•  i)er  cent.  All  notes  were 
received  for  public  diu-s  and  were  convertible  into 
ji^ovci-niiu'iit  l)ills  of  ('X(dian<^c  on  London  at  thirty 
days  sight,  at  *lie  rate  of  exchange  as  fixed  by 
authority.  o\  into  cash,  at  the  option  of  the  com- 
mander of  the  forces.  As  the  I'ate  was  fixed  by 
commissioners,  whose  duty  was  to  nuike  the  fairest 
])ossibh'  approxinuition  to  the  market  rate  of  ex- 
change, the  holders  of  the  ai'iny  bills  had  slight 
cause  for  complaint.  At  the  close  of  the  war.  the 
outstanding  issues,  amounting  xo  tl.240,9l)()  cur- 
rency in  ^[arch.  181.").  were  reduced  through  rapid 
redemption  to  less  than  t"i<'0, ()()()  cunvncy  by  ^Nfay, 
1810.'  The  ottice  of  issue  was  timilly  closed  ;:>4th 
December,  IS'io.-' 


'Canadian  eurreiiry,  inoro  often  called  Halifax  currency,  was  an 
arbitrary  money  of  account  used  in  all  the  larjxcr  liritish  North 
Ainercian  provinces  until  the  decimalization  of  the  currencies  in 
the  early  fifties  of  the  present  century.  The  denominations  were 
dollars,  pounds,  shillings,  and  jience  ;  the  table  l-d.  =  l  shillinj:, 
L'ds.  =£1,  ")S.  =.'yi,  the  dollar  beinji  oriji;iiially  the  S[)anish  ))illar 
dollar,  coined  before  177:.'  and  containinu  :'>sr>  firains  fine  silver. 
This  currency  was  established  for  the  jirovince  of  Canada  l)y  an 
ordinance  of  17<i">,  which  changed  the  monetary  nomenclature  from 
French  to  English,  but  adopted  as  money  unit  a  shillinjr,  ecjual  in 
value  to  the  old  French  lirre;  ride  Stevensiui,  oj).  rit.  p.  124.  The 
unit  was  often  altered  slightly,  and,  after  the  debasement  of  the 
American  coinage,  in  is:'.4,  was  reduced  so  that  the  dollar  unit  of 
the  two  systems  would  correspond.  In  1S41  the  t'  sterling  was 
reckoned  at  iMs.  4d.  currency;  the  dollar  (U.  S.)  at  .^  Id.,  but  after 
i  SoO  at  -"is. 

-For  complete  details  respecting  this  issue,  including  all  the 
important  documents,  ridr  Stevenson,  "  The  Circulation  of  the 
Army  lUlls  with  some  Remarks  upon  the  War  of  ISIl',"  Trans- 
actions, lit  suj)rti,  ISMl-Di',  ]).  ;'.(>. 


Tlir  Firsf  /l(in/,s 


25 


The    contraction    of    tlic    Army    Bill    circulation 
caused    inconvenience    in    Upper   Canada,    and    Die 
Lower  Province,  with  its  orcater  trade,  suffered  still 
more.       Soon  after   the   redemption   was   practically 
complete,  the  hank  question  was  revived.     15ut  the 
participants  in  the  next  attempt  to  estahlish  a  hank 
puhlished  no  detailed  cv/tosr  of  their  motives.     Xor 
did  they  seek  the  parliamentary  consent   of  the  le^-- 
islatur(>.     They     simply   he<;an    their    husiness.      On 
the  28(1  of  Juiu'.  IS  17.  a  comjtany  of  jiersons  nn't  at 
Montreal  and  sin^ned  articles  of  a,nreem(>nt  hy   which 
an  associatioji   was  formed,  with  a  joint  and  trans- 
ferahle  stock,  limited  to  i'-J.")().0(H),'      j.att'  iiv  Auyust 
the  new  association  optMied  an  office  as  the  Bank  of 
Montreal.       And    this,    the    first    hank    of    discount, 
deposit  and   issue  to   l>e  estahlished.  either  in  Lower 
Canada,  U})per  Canada.  Xova  Scotia  or  New  Bruns- 
wick,   is   to-day  the  g-reatost   hank,  not  only  in  the 
Canadian     Dominion,    hut    in    the    whole    of    North 
America. 

An  act  incorporating-  the  association  was  passed  in 
the  next  session  of  the  legislature,  hut  was  rest«rved 
hy  the  governor  for  the  signification  of  the  royal 
pleasure.  The  royal  assent  was  withheld  and  the 
Bank  of  Montreal  continued  as  a  i)rivate  partnership. 
The  exami)le  set  hy  :\rontreal  was  followed  the 
next  summer  hy  citizens  of  Quehec.  Articles  of 
association  of  the  Quehec  i^ank  were  sigiu'd  !)th 
July.  ISLS.  Directors  were  elected  in  Sei)tend)er.-' 
and  this  hank  also  started  as  a  private  partneiship, 
its  capital  heing  limited  to  I'To. (»()().  The  memhers 
'.Toiirnal,  L.  ('.,  ISl'O-IS-JI,  ].,  Ki;!. 

-TIk'  Sliarehddev  ami  lii^H);iiice  Ga~en,\  Septemher  IL',  isiiu,  "Tlie 
Qnehec  l?ank."  l.y  an  aiionyiiioiis  writer,  known,  iiowi'vcr,  to  liave 
access  to  ttit' records  of  die  institution. 


¥ 


26 


The  Canadian  Bankimj  Si/slon,  1817-1890 


of  the  association  applied  for  incorporation  in  1819, 
without  success,  however,  for  the  bill  failed  even  t» 
come  before  the  committee  of  the  whole  house. 

A  third  bank  was  organized  by  another  group  of 
Montreal  citizens  on  the  SHth  August,  1S18,  as  the 
Bank  of  Canada,  the  capital  limit  of  which  was 
finally  set  at  i;20(),()0().  This  bank,  too,  applied  for 
a  charter,  but  failed  to  secure  it.' 

Finally,  in  the  winter  of  1820-21,  the  shareholders 
of  each  of  the  three  banks  thus  established  again 
petitioned  the  legislature  to  be  erected  into  bodies 
corporate  and  politic.  They  recited  in  effect  that 
their  cai)ital  stocks  had  been  all  subscribed,  that  the 
portion  of  which  the  paymi'ut  was  required  by  the 
articles  of  agreement  had  bi'cn  paid  in.  that  they  had 
been  engaged  for  some  years  in  the  business  of  bank- 
ing, and  that,  without  the  benefit  of  incorporation, 
the  beneficial  purpose  contemplated  by  the  establish- 
ment of  the  banks  would  be  imperfectly  attained, 
and  great  inconveniences  would  be  incurred  in  the 
conduct  of  their  business.'-  They  prayed,  therefore, 
to  be  incorporated  under  regulations  and  provisions 
as  nearly  cori'^])onding  with  the  terms  of  their  origi- 
nal association  as  might  be,  and  under  such  other 
regulations  and  provisions  as  the  legislature  might 
prescribe. 

The  prayers  of  the  petitioners  were  granted.  On 
the  17th  March,  1821,  three  charters  incorporating 
the  several  banks  were  presented  by  the  legislature 
for  the  royal  assent.  Being  reserved  by  the  gov- 
ernor, the  charters  did  not  become  law  for  over  a 
year.    "An  Act  to  incorporate  certain  persons  therein 


'Journal,  L.  C,  1S20-21,  p.  40. 
■Ibiit,  pp.  40,  48,  lO;'). 


The  First  Charters 


a? 


named  under  the  name  of  -The  President.  Directors 
and  Company  of  the  Bank  of  Montreal"*"  (1  Geo. 
IV,  cap.  2^},  L.  C.)  was  proclaimed  tlie  22d  July.  1822. 
Similar  statutes  respecting  the  Quebec  Bank  (1  Geo. 
IV,  cap.  2r.,  L.  C),  and  the  Bank  of  Canada  (!•  (leo. 
IV,  cap.  27,  L.  C.)  were  proclaimed  on  the  ;]()th 
November  of  the  same  year.' 


^2. — THE    FIRST    CHAKTEHS 

Save  in  regard  to  the  amounts  of  their  capital,  the 
location   of  the   banks   and  the  conditions  as  to  the 
residence  of  the  directors,  tlie  provisions  of  the  three 
charters  were  practically  identical.      The  charter  of 
the   Bank   of  Montreal   may  be  taken   as   the  type. 
The  preamble  declared  the    "advancement  of  agri- 
culture and  commerce  and  the  promotion  of  the  i>ros- 
perity  of  the  province"   to  be  the   motives  for  the 
legislation.      One    hundred   and    forty-four  pei'sons, 
then  the  stockholders  of  the  company,  their  succes- 
sors and  assigns,  were  created  in  this  iistance  a  body 
corporate  and  politic,  with  corporate  po/'ers  continu- 
ing to  the  1st  June,   1831.     Their  capital  stock  was 
limited  to  £250,000  currency,  the  Avhole  to  be  paid  in 
by  annual  instalments  of  not  more  than  10  per  cent, 
within  nine  years  from  the  passing  of  the  act. 

Thirteen  directors,  British  subjects,  residents  of 
Montreal  for  at  least  three  years,  or  sometime  resi- 
dents of  Montreal  for  three  years,  and  of  the  i)ro- 
vince  for  seven  years,  and  holders  of  at  least  four 
shares  each,  were  to  be  annually  elected  by  such 
shareholders  as  were  British  subjects.  Xine  of  the 
directors,  including  the  president  and  vice-president, 
'Statutes  of  Lower  Canada,  vol.  xi,  lSL'1-24,  follo\vin>r  p.  L'4S. 


28 


The  Canadian  Bankiufi  Si/slem,  1817-1890 


were  to  be  re-elected  to  tlie  board  each  year.  The 
directors  were  forl)i(hleii  to  act  as  private  bankers 
dui'ing  their  term  of  oitice,  were  to  api)oint  the  otticers 
nec(>ssary  for  tlie  bank,  and  to  reqnire  of  them  bonds 
a<le<]uate  to  tlieir  trust.  Tliey  were  to  i-eceive  no 
salai-y  except  by  a  vote  of  the  sliareholders  in  general 
meeting,  to  declare  halt-yearly  dividends  out  of  the 
l)rotits  of  tlie  bank,  but  never  to  encroach  upon  its 
capital,  to  keep  a  book  for  the  registry  of  transfers 
of  stock,  to  have  the  right  to  inspect  the  books,  cor- 
respondence and  funds  of  the  coi'poration,  and  to 
pi'esent  to  the  annual  general  meetings  of  the  stock- 
holders exact  and  particular  statements  of  the 

Debts  due  to  and  by  the  bank. 

Amount  <»f  bank  notes  in  circulation. 

•Amount  of  probably  bad  or  doubtful  debts. 

Surplus  or  i>ioiii.  if  any  remaining,  after  deduction 
of  losses  and  provision  for  dividends. 

The  directors,  further,  were  to  be  liable  for  the 
excess  in  their  natural  capacities  (/.  e..  individually 
and  jointly),  as  well  to  the  stockholders  as  to  the 
holders  of  bank  notes,  in  case  the  debts  of  the  corpo- 
ration by  bond,  bill  or  note,  or  any  contract  whatso- 
ever, should  exceed  treble  the  amount  of  the  cai)ital 
stock  actually  paid  in,  over  and  above  a  sum  equal  to 
such  money  as  might  be  deposited  with  the  bank  for 
safe-keeping.  ]^ut  individual  directors  in  opposition 
might  exonerate  themselves  from  this  liability  by 
publishing  within  eight  days  from  the  time  of  the 
illegal  transaction,  a  statement  thereof  and  tlieir  pro- 
test against  it. 

The  stock  of  £:?r)0,()(K)  was  divided  into  T), ()()()  shares 
of   £.")()  each.     The  shareholders  were  to  vote  at  all 


The  First  Chiirters 


•-.'9 


meetings  in  tlie  following  proportions  ^i  stock  owned: 
for  1-2  shares  the  holder  had  J  vote. 
"  each  2  •'      from  ;M0  shares,  inclusive.  1  vote 
••      '•     4  •'         ••     1  j-^^o       *.  ;>  I      .. 

•'      ''     <5  '•         '•    :jl-(;o       ••  ..  1      .. 

••     S  ••        '.    ()l-i()()     ..  .i  I     ., 

The  holders  of  10  shares  would  thus  have  .")  votes;  of 
'M),  10:  of  CO,  1."):  of   loo,   '>()  votes.     Xo  shareholder 
was  to  have  more  than   twenty   votes.      Proxies  for 
ahsent   shareholders    were    i)ermitted.      This    voting 
scale,  designed  to  reduce  the  influence  of  large  share- 
holders in  the   directorate,    was   adopted   in   all    the 
charters  granted  by  Lower  Canada.     After  the  first 
election  of  directors  a  share   was  not  to  entitle  the 
holder  to  vote  unless  held  for  three  months  prioi-  to 
the  meeting.    Fifty  shareholders,  having  not  less  than 
I'H)  shares,  might  call   a   special   meeting  of   share- 
holders, at  which  a  majority  might  suspend  or  remove 
directors  guilty  of  malfeasance.     Transfers  of  stock 
were  not  to  be  valid  and  effectual  unless  registered  at 
the  ottice  of  the  bank,  nor  until  the  transferor  should 
have  discharged   all   debts   by  him  then  due  to  the 
bank  which    might  exceed  the  remaining  stock   be- 
longing to  him.     Fractional  shares  were  not  ti-ausfer- 
able.    Shares  were  made  personal  property  aiul  liable 
to    bond  Jidc    creditors    for    debt.     They     might     be 
attached  and  sold  undei-  a  writ  of  attachmcMit  and 
execution    served    upon    the    cashier   of   the    bank. 
Failure  to  pay  the  instalments  on  the  shares  as  they 
became  due  involved  a  penalty  in  favor  of  the  bank 
of  o  per  cent,  on  the  amount  of  the  delinquent's  stock, 
as  well  as  upon  his  dividends  due  at  the  time,  and 
those  accruing  before  his  payment  of  the  instalment. 
But  the  shareholders   were  exempt   from  individual 


it 


30 


The  Cinwdian  Bankinrj  Si/sfem,  1S17-1890 


liability  for  tlie  debts  of  the  bank,  even  when  these 
exceeded  thrice  the  capital  stock  i)aid  in  ]>lus  the 
specie  deposited  for  safe-keeping.  The  shareholders, 
therefore,  were  incorporated  with  limited  liability, 
and  enjoyed  the  extensive  privilege  of  a  liability 
limited,  not  to  double  tlie  amount  of  their  subscrip- 
tions, but  merely  to  the  amount  of  their  subscribed 
shares. 

The  corporation  thus  created  was  empowered: 

to  hold  real  estate  to  the  value  of  £'1,000  yearly 
and  no  more; 

to  sue  and  be  sued  in  the  name  of  the  President, 
])i vectors  and  Company  of  the  Bank  of  ]\Ion- 
treal ; 

to  issue  promissory  notes  intended  to  circulate  as 
money  and  payable  on  demand  in  gold  and  sil- 
ver coin  current  by  the  laws  of  the  province: 

to  receive  deposits  and  to  deal  («)  in  bills  of  ex- 
change. {!>)  in  discounting  notes  of  hand  and 
promissory  notes  and  to  receive  the  discount 
at  the  time  of  negotiating.  {<■)  in  gold  and  silver 
coin  and  bullion,  and  {<!)  in  the  sale  of  stock 
pledged  for  money  lent  and  not  redeemed; 

to  take  and  hold  mortgages  and  Jit/pothiqiies  on 
real  property  for  debts  contracted  to  it  in  the 
ordinary  course  of  its  dealings,  but  on  no 
account  to  lend  on  land,  mortgage  or  hijjwfJinine, 
nor  to  purchase  them  on  any  pretext  except  as 
here  permitted. 


Obligations,  bonds  and  bills  of  the  bank,  whether 
obligatory  or  of  credit,  under  its  common  seal,  signed 
by  the  president  or  vice-president,  and  counter- 
signed by  a  cashier,  were  assignable  by  indorsement 


The  First  Charters 


31 


of  the  person  to  vvhom  they  were  made,  any  hiw, 
custom  or  usage  to  the  contrary  notwithstanding. 
And  notes  or  bills,  promising  the  payment  of  money 
to  any  person  or  persons,  his.  her  or  their  order, 
issued  by  the  order  of  the  bank,  and  similarly  signed, 
though  not  under  seal,  were  to  bo  binding  and  oblig- 
atory and  assignable  and  negotiable,  by  blank  or 
other  indorsement,  '-in  like  manner,'"  the  charter 
reads,  -as  foreign  bills  of  exchange  now  are.""  Bills 
payable  to  bearer  were  assignable  by  delivery  only. 
These  details,  however,  are  but  incidental  to  (jues- 
tions  of  banking:  they  belong  rather  to  the  law  of 
commercial  j.aper  in  which,  at  that  time,  the  legisla- 
ture was  obliged  to  establish  some  new  precedents. 

The  other  restrictions  upon  the  bank  were  very  few. 
The  prohibition  of  loans  upon  land  and  mortgage  has 
been  cited:  so  too  the  limit  upon  the  real  estate  which 
might  be  owned  by  the  bank.     It   was   forbidden  to 
engage  in  business  other  thaii  that  specified  in  the 
grant  of  powers,   /.  e.,  the   ordinary  banking  trans- 
actions.    It  might  not  demand  or  receive  more  than 
the  lawful  interest  of  C.  per  cent,  per  annum  in  any 
of  its  dealings.     The  bank"s  total  debts  were  not  to 
exceed  treble  the  amount  of  the  capital  stock  actually 
paid  in,  plus  a  sum  equal  to  moneys  deposited  with  it 
for  safe-keeping.     It  might  not  raise  loans  of  money 
or  increase  its  capital,  and  upon  pain  of  the  forfeit- 
ure of  its  charter  the   bank  was   forbidden  to  loan 
money  to  a  foreign  state.     No  penalty  whatever  was 
attached  to  the  other  prohibitions,  save  the  individual 
liability  of  directors  in  case  the  aggregate  debts  of 
the  bank  exceeded  thrice  the  paid  up  capital  stock. 
"For  the  better  security  of  the  public.""  the  gov- 
ernment, or  either  branch  of  the  Provincial   Parlia- 


33 


The  Canadiita  liankinr)  Si/s/mi,  1817-1890 


mcnt.  was  empowered  from  time  to  time  to  re(iiiire 
from  the  bank  statements,  under  oath,  of  the  eapital 
stoek,  debts  due  to  the  bank,  moneys  deposited  in  it 
and  notes  in  circulation.  On  the  otlier  liand,  the 
legisUitur(^  provided,  in  the  bank's  behalf,  exti-aordi- 
nary  jienalties: 

(a)  Against  forgery  of  the  seal  oi-  bonds  or  bills  of 
the  bank,  or  knowingly  passing  forgeries,  vi/.,  from 
six  months'  to  six  years'  im])ris<»nment  at  hard  labor, 
or  public  whipi)ing,  or  standing  in  the  pillory,  or  one 
or  moi'e  of  the  i>unishments  at  the  discretion  ef  the 
court: 

(h)  Against  making  or  engraving  i)lates  or  tools 
for  counterfeiting  the  bills,  notes  or  undertakings  of 
the  bai;k,  or  liaving  in  one's  posst'ssion  i)lates,  i)aper, 
presses  or  tools,  with  the  intention  of  so  countei'f<'it- 
ing.  viz.,  deatli  as  a  felon,  without  benefit  of  clerg}'. 

The  rights  of  the  King  and  other  bodies  corporate 
and  politic  were  saved  by  section  xvii.  In  section 
xxi.  tlu!  duration  of  the  act  is  limited  to  1st  June, 
1S:5I.  and  it  is  further  provided  ••  that  if.  before  the 
exi>iratiou  of  that  period,  it  shall,  at  any  time,  be 
found  ex[)edient  to  establish  a  Provincial  Bank  in  this 
Province,  and  that  the  same  be  so  established  by  an 
Act  of  the  Legislature,  the  corpoi'ation  of  the  Pank  of 
Montreal  shall,  from  and  after  tlie  expiration  of  seven 
years  from  the  passing  of  such  Act,  be  dissolved.'' 

The  Quebec  Bank  was  incorporated  with  a  capital 
stock  limited  to  t75,()00  currency,  in  8,000  shares  of 
£25  each,  all  to  be  paid  u\)  within  nine  years:  the 
Bank  of  Canada,  with  a  stock  of  1'2()0,000,  in  4,000 
shares  of  HoO  each.  In  other  respects  the  charters 
are  substantially  similar  to  that  of  the  Bank  of 
Montreal. 


Ch'n'drlrrlslir.^nf  Ihr  Karhj  llioikiiiij  Si/s/rii>  ;J3 

Jj.'i.— (IIAItAC'TKUISTICS    OK    THK    KAKKV     liANKIXO 
SYSTEM 

From  tlu>  prcccdinjr  nccoiuit  it  may  he  seen  liow 
simple,  in  many  ways  liow  lax.  were  tlic  cliartcrs 
under  vvliich  incorporated  banks  first  operated  in 
Lower  Canada.  Tiie  sliareliolders  were  ]ial)lo  only 
for  the  amount  of  tlu'ir  sul)S('rii)tions  to  tlie  stoek. 
There  was  no  limit  to  the  not(>  issu(>  other  tlian  tlie 
l.rovision  restrietino-  tl„.  ao^Te^^ate  of  debts.  There 
was  no  process  whereby  to  establisli  tlio  pavment  in 
specie  of  tli(>  cai.ital  stock.  There  was  ni.thinj.-  to 
prohibit  hians  n])on  the  security  of  the  bank's  stock, 
or  to  j.revent  tlu'  cai.ital.  once  ].aid  in.  fn.m  bein^- 
humed  out  bodily  to  tin-  dirc-ctors.  The  publication  of 
fre(iuent  and  periodical  statementsof  the  condition  of 
the  banks  was  not  reiiuired.  nor,  except  in  the  case  of 
loans  to  a  foreign  state,  did  the  (diarters  enforce 
by  any  penalty  the  prohibitions  and  restrictions  that 
were  laid  down. 

it  must  be  i-emembered.  how(>ver,  that  the  several 
charters  were  based  upon  articles  of  agreement  di-awn 
up  by  the  parties  petitioning  for  incorporation:  that 
Canadians  in  1820  had  had  little  cause  for  inquiring 
luto  either  the  tlieory  of  banking  or  the  law  whicli 
should  govern  banks.  Any  advantage  in  knowledge 
of  this  sort  doubtless  belonged  to  those  who  first 
entered  the  business.  In  drafting  the  articles  so  as 
best  to  further  their  profit,  they  naturally  omitted 
many  restrictions  which,  afterwards,  and  from  a 
public  standpoint,  were  found  to  be  desirable.  Eithei- 
through  ignorance  or  carelessness  the  legislature  of 
1^20-21  failed  to  fill  up  the  gaps.  But  to  criticise 
their  action  at  this  i>oint  will  merely  involve  repeti- 
tu>n.     The    whole    subsequent    histoiy  of    Canadian 


34 


The  ('(luadian  lianh-iiiii  Sjislvn),  1817-1S90 


i)aiikinj;-  legislation  is  a  criticism  upon  these  early 
clu'.rters.  ami  a  criticism  (Usrived.  not  a  priori,  but 
from  experieniie. 

In  tlieir  constitution  and  vnritit y  of  function,  in  tlu^ 
simplicity  of  the  law  regulating  them,  the  first  Cana- 
dian hanks  more  closely  resemble  the  chartered  banks 
of  Scothmd  than  any  similar  institutions  then  in 
existence.  The  likeness  is  due  to  more  than  tlie 
reliance  which  Canada  has  usually  placed  upon 
British  precedents  in  matters  as  yet  untreated  in  her 
own  law.  It  must  bo  explained,  in  large  jtart.  by  tlie 
number  of  Scotchmen  ijiterested  in  these  early  banks.' 
Having  broughi  from  tlieir  native  land  the  knowledge 
of  sucli  institutions,  tliey  sought  in  tlie  colonies  to 
exteiul  aud  to  perpetuate  for  the  farmer  and  merchant 
the  benefits  and  stinuilus  of  a  system  the  tvorth  of 
wliich  Scotland's  ])rosperity  could  abundantly  i)rove. 

That  the  early  charters  embodied  many  of  the  more 
essential  principles  of  Canadian  banking  and  Cana- 
dian banking  law  will  be  recognized  as  we  trace  the 
later  grt)wth.  One  sucli  principle  is  the  issue  of  notes 
against  the  general  assets  of  the  bank,  or  in  different 
phrase,  on  the  general  credit  of  the  bank:  another, 
the  requirement  of  a  large  cai)ital  foundation,  both 
to  strengthen  the  credit  of  the  bank  by  a  heavy  guar- 
antee, and  to  provide  sufficient  funds  for  its  oi)era- 
tions.  A  third  is  the  plan  of  granting  each  new  bank 
a  sei>arate  charter,  a  method  by  which  some  assur- 
ance may  be  had  that  the  incorporated  are  worthy 
of  their  privileges.  Again,  a  fourth  is  the  principle 
of  accountability  to  the  government,  destined  to  find, 

'Among  the  one  hundred  and  forty  odd  charter  members  of  the 
Bank  of  Montreal  there  were  at  least  ninety  Scotch  names.  Of  the 
eighty-nine  incorporated  as  the  Quebec  Bank,  no  less  than  thirty 
were  Scotch.     Statutes  vf  supra. 


I'!nriri>)niinii  of  llir  lititiks 


85 


imdci'    the    Doiniiiioii    law: 


coniplctc    and    fn'(iiu'nt 


cxprcssidii  ill  the  rciiiiiiviiiciit  of  a  iiK.ntlil.v  n-tiirii  t( 
the  Minister  of  Fiiiaii 


fC 


The  hanks  tlienisciv 


cs  soon  intro(hic(Ml  sonic  of  th< 

Tin 


more  fiiiKhunental  features  of  Scotch  l)anlcinu-. 
Bank  of  Caiuuhi  phiced  an  a«ent  at  Kingston,  in 
l'j»l'«T  Canada.'  Tlie  Hank  of  Montreal  estahlished 
an  oflice  of  discount  and  (k'posit  at  (^n(d>ec,  and 
enii)loyed  one  a^^ent  at  Kinj^ston.  and  another,  for  the 
lU'gotiation  of  sterling-  exchange,  iu  the  city  of  New 
Vork.'-'  Tliesevtu-al  hanks  were  accustomed  to  receive 
in  payment  the  notes  of  their  competitors  and  other 
(h'mands  upon  them,  e\chanf,^e  these  a^^ainst  chiims 
on  tliemselv(-s  and  exact  the  payment  of  hahmces  in 
specie  as  often  as  once  a  week.'  Thus  was  hegun 
tlie  practice  of  hranch  hankin<,^   one  of  the  most  use- 


ful features  of  the  Canad 


ian  system  to  the  puhlic  no 


h'ss  than  to  the  hanks,  and  the  conduct  of  excl 
hetween  the  hanks.      By  the   latter  Cana<lians   1 


lang-es 


lave 


secured  frccjuent  and  rigid  tests  of  the  sol 
the  participants  and  an  efficient  safeguard 
augmentation  of  the  note  issue  in  excess  of  the  need.^ 
of  trade. 


vency  of 
against 


s:4.  — KNVIKOXMENT    OF    THK    liANKS 

To  depict  the  condition  of  the  country  in  which  the 
persistent  enterpi-ise  of  the  British  "colonists  liad  at 
last  secured  tlie  new  hanking  institutions,  is  a  task 
for  the  economic  historian  ratlier  than  for  these 
pages.     He  may  descrihe  in  detail  its  commerce,  and 

'.Tournal,  L.  C,  ISl'h,  Appendix  K. 
-Journal,  L.  C  ,  ISliO,  Appendix  K. 

'Journal,  L.  C,  ]Si.'<t,  Appendix  Hii,  Resolve  of  the  Board  of  the 
Bank  of  Montreal,  28th  January,  1820. 


;m 


Thr  Cdiiiidiiin  lUtiikiiuj  Si/s/rm,  lSlT-1800 


murk  how  far  had  procccdt'd  its  dcvi'loinnciil  in  agri- 
culture and  manufacturt'H.      Hut  wliatever  elHc  may 
he  told,  it  is  ccrtaiu,  at  h-ast.  that  from  lSt>(»  to  1S:{(». 
tht'  itrovint'c  of  liowcr  C!anada  was  not  far  advanced. 
In  conuncrcial  act ivit y  and  J4('m'ral  economic  devel- 
oj)ment    it   was   mucli    inferior  to   the   state   of    New 
York  on  its  southwestern  honh'r.  and  the  comi)aris<m 
withOliio  in  tiu' hiter  years  of  the  decade  would  have 
been    distiiittly    unfavoral)!*'.     It    had   suffered  from 
conuncrcial    restrictions,    from    tiie  simplicity.    i^n<i- 
I'unce  and  fixed  hai)its  of  the  Kreiu-h  h((l>ihiiifs,  from 
its   severe  climate   and    from   th<>  checks  imposed  l)y 
an  absorhinj;'  |»(»litical  sti'ife.     The  cause  of  the  last 
was  the  race  (|  nest  ion.  the  dec])  seated  enmity  hetwei'U 
the  British  immij^iants   and  the  descendants   of   the 
con(juered    frcucli.     That  enmity  was  eiultittereil  by 
the  ascendancy  which  unjust  favoritism  of  the  royal 
g'ov<'rnors  had  ludi»ed  to  j^ive  the   Hiitish  in  the  n'ov 
ernment  and  tlie  i)r()fession  of  law.  and  which  "their 
own    superior  euei'^^y.    skill   and   cai)ital.  secured   to 
them  in  every  branch   of  industry.'"  Continuin<.j.  in 
his  report  of  1S:>!).  Lord  Durham  renuirked  that  ••they 
(the   English)   have  (leveloi)t'd  the  resources  of    the 
country,  they  have  constructed  or  improved  its  means 
of  communication,  they  have  created  its  foreign  com- 
merce. The  eiitiii-  wholesale  and   a  large  portion  of 
tlu>   retail   trade   of  the  i)r()viuce.  together   with  the 
most    profitable    and    flourishing    farms,    are  in    the 
hands  of  a  uuus  rical  minority  of  the  i»oi)ulation."'' 

The  chief  export  ti'ade  of  the  city  of  Quebec  was 
in  timber,  that  of  ^lontreal  in  furs.    Ginseng,  potash 

'Report  on  tlie  Affivirs  of  British  North  America,  fron)  the  Karl  of 
Durham,  Her  Majesty's  High  Commissioner,  etc.,  IMontreal,  ls;i!», 
pj).  14  and  l!i. 


find  uraiii  canic  next  jn  iinportjiiic.'.  Tli."  imports 
«<»nsisf,Ml  inninly  of  dry  >.oods.  luirduarc.  spirits. 
sii«Jir  iiiid  su(di  necessary  eonunodities  ns  the  colo- 
nists were  not  in  ;i  in.silion  to  produce  for  themselves. 
The  totill  discounts  of  the  l)ailks.  exchlsive  of  the 
I'.iink  of  Cunnda.  which  did  not  report  to  the  h-^isla- 
ture  in  is:?().  were  as  follows: 

'"'"'  t.iiU'l.t'r  Hiiiik'      Haul;  (.f  MoiilR'uI-' 

'''-' I    H'.m.'.Kiii 

'  — I,  I  I'll.!  14! » 

'^-•'  cii-i,-:.^  I.l7:;,i(i7 

'^-'   -H'.SMS  l,7(io.l(,:! 

"^;' itMii  i,s:,i,,Mit 

'■''-" i.')<i,.-);;s  i,:;r)t,uL'4 

'^-' t;>«.l-4  I.l7t,!i7i 

"^-^ i:i"."!'t  l,:!77.4s;! 

"^-'■' t'^l.'lll  l,.-..V,i,(lS3 

1'^"'" :c'(l.S7(t 

The  colouy  was  extremely  dependent  upon  the 
iiiother  country,  and  when  crises  or  commercial  dis- 
tiirhances  occurred  in  Knulaud  Canada  suffered 
sorely.  A  striking'  indication  of  this  (|ep..ndence  is 
the  fact  that  for  two  years  after  the  <lisastrous  Kujlj- 
iish  collapse  of  Kso.")  the  Hank  of  :\rontreal  was 
<'l)li«cd  to  pass  its  (livi(h.iids.  owinj^r  t,.  losses  on  mer- 
chants* excluing-e  incurred  in  the  panic  year.' 


S.'). — I'RACTICK  OK  THK   HANKS 

in  (exchange  the  Kank  of  Montreal  was  the  largest 

dealer,   thouoh  the   Bank  of  Canada  joined    in    the 

l.usine.ss  of  buying  and  selling  merchants"  exchange 

;ind  the  commissariat  bills  of  the  government,  and  of 

'.Tournal,  L.  C  ,  1S;!1,  Appendix  ^F. 
-Journal,  L.  ('.,  18;'.1,  Appendix  N. 
Mournal,  L.  C,  18l'!),  Appendix  IIii. 


38  The  Canadian  Bankimj  Si/Kfeni,  1817-1800 

flll•nisllill^^  when  vcMiuired.  tlieir  own  drafts  uoon 
London.'  Tlic  former  bank  oniploycd  its  New  York- 
agents  for  operations  in  the  American  market,  fre- 
qnently  more  favorable,  in  matters  of  sterling  ex- 
change, tlian  that  of  Lower  Camuhi.  It  also  remitted 
bills  diieet  to  Enghuid  against  its  own  imports  of 
specie,  colonial  imjiorts  of  goods  or  adverse  balances 
othei'wise  incnrred.' 

T  have  previously  noticed  the  ai)penrance  in  Cana- 
dian practice  of  tlu'  vital  features  of  branch  banking 
and  a  system  of  frcipient  exchanges  and  note  i-e- 
demptions  conducted  by  the  banks  themselves.  The 
plan  of  using  New  York  as  a  market  for  s(erlin<>- 
bills,  a  source  foj-  the  supply  of  specie  aad  a  center 
for  th(>  employment  at  call  of  portioiis  of  the  bank's 
reserve  funds,  has  been  followed  by  the  greater  banks 
since  its  introduction.  An  idea  of  the  extent,  at 
least,  of  the  business  carried  on  by  the  three  banks 
can  best  be  conveyed  by  the  following  returns  to  the 
legislature  for  K^L>4    I8!2(l.  ]82'.)   18;n. 

'Journal,  L.  ('.,  ISl'.")-'_M,  j>.  L>S4. 

-For  example  tl\e  Hank  of  Montreal  in  its  excliantrc  Ixisinps."  in 

1S27  ISi's  is:;<» 

Bought  of  tlH'gdvernnicnt i.'47,(inO     {;.".(;, i»(i(i     fl4,-),(i()() 

I'l'ivatc  hills I8,7l'9       44,:!(i7         (io'(il() 

Drew  of  its  own  hills 4(i,!»5l        •1-.',47l'       li)0,r)Sl 

f^old  of  its  own  in  the  United  States.    ..      l(;,(Hi(i       4i',i.'00         aS.soo 

"     the  jtovernnieiit  hills i'.lMOO        17, 5(1(1       lll.ddii 

The  current  rate  of  exciiauire  on  jjohl  in  those  yearn  ranged  from 
2  to  8  percent,  premium.     Journal,  L.  ('.,  1S;;(1,  .\ppi',idix   X. 


Praclicc  of  I  he  Bioiks 


39 


n 


M       w       :r 


C3  —  C  — 


V}  —  lO 


M         i,)  - 


—  I  - 


?'       V       T 


I    -, 


M         X         -^ 


IS^^^i 


—  '■  ~ 


'■S''^ 


p,J3  :o>. 


■->        v:        r  -        — 


'?5-£.?5.S-=J« 


i& 


--a 


O        c: 


O^ 


c;       i~       c       cc 


_    !   C 


ri       j.)       — . 


X       - 


c  -   s  —  =  — 


M         :.)  .r 


•'        - 


i-y. 


y:jt    z; 


'    =  .^  >^  X       XX. 


ui  i>'"="i;     ^ 


— •  -i  -  *" 


5  "■  i  i-  i  i  H  4) 


r  —  :  X  =  1  - 


40  The  Canadion  Bankhir/  System,  1817-1890 

Comparing  these  figures  witli  the  report  of  aggre- 
gate discounts  on  a  preceding  page,  it  will  be  seen 
that  for  the  Quebec  Bank  the  total  discounts  were 
from  '.i\  to  4i  times,  for  the  Bank  of  ^lontreal  from 
ii'l  to  .").}  times,  the  debts  due  to  the  banks  respec- 
tively neai"  January  of  each  year.  As  the  debts  due 
undoubtedly  included  balances  for  which  other  banks 
were  lial)le,  the  multiples  just  calculated  should  be 
increased  somewhat,  justly  to  represent  the  frecjuency 
with  which  the  Ijanks'  loanable  funds  were  turned 
over.  After  making  this  correction  it  nuist  be  con- 
cluded that,  on  the  whole,  the  two  banks  which  sur- 
vived had  little  of  their  capital  locked  up  in  overdue 
loans,  and  were  making  their  advances  upon  short- 
time  papi'r.  Contemporary  evidence  confirms  the 
conclusion.' 

That  the  directors  should  be  familiar  with  mercan- 
tile cretlit.  the  members  of  the  board  were  generally 
merchants,  and  naturally  they  wei-e  not  precluded 
from  the  advantages  of  baidc  credits.'    The  statement 

'A  i)etitioii  to  tlie  k'L'islatnre  of  IM".*,  attacUin*:  tlie  Bank  of  .Mon- 
treal, complains  of  "ilH  resohition  not  to  di.scunnt  any  l)ill  for,  or 
niakt'  any  ailvanofs  to,  persons  not  directly  enjrafred  in  trade;  a  rule 
wliioli,  wliile  it  i'nt.s  tlie  bank  itself  oil  from  a  liierative  and  secure 
brancli  of  trade,  deprives  the  imblic  of  those  arvantatres  whicli  in 
countries  where  the  hanking  system  is  better  understood,  are  eon- 
sidereil  as  important  to  tlie  airricultural,  professional  and  general 
interest  as  to  that  of  the  mercantile  part  of  the  community,  and 
disi)lays  the  nan-ow,  mistaken  and  selfish  views  of  those  who  can- 
not droi>  the  trades  when  they  assume  to  he  bank  directors."  .lour- 
nal,  L.  ('.,  ISL'ii,  p.  :;54. 

-On  ■")th  February,  ls;;i,  the  ciuebec  IJank  reported  dis- 
counts *;o  directors  or  money  loaned  or  for  wliich  they  are 

security  as  jiromissors £L':l, (!(>•_' 

Total  liabilities  of  direcmrs  to  the  bank  as  promissors. . . .     :in,l5ii 

As  endorsers 4"),7i;j 

As  security  for  ollicers 1,1'70 

Total i;i)7, 1  :y.i 

Debts  due  to  the  bank  9th  February,  is;!l £1()0,201 


Practice  of  the  Banks 


41 


in  the  preceding  note  shows  that  directly  or  indirectly 
the  directors  both  of  the  Quebec  and  Montreal  banks 
were  liable  for  over  a  third  of  the  debts  due  to  each 
respectively  in  the  winter  of  18:U)-;n.     In  18154  the 
proportion  of  directors'  liabilities  1^.  total  discounts 
was    £'47,4;>(i  to   t'llDjial    for  the  Quebec  Bank  and 
&\mA'2\  to  iT)71).7L^J)  for  the  Bank  of  Montreal.'    The 
large  share  which  went  to  satisfy  the  directors'  de- 
mand for  discounts  is  more  easily  justified  when  one 
remembers  the  comparative  wealth  of  these  persons 
and  the  importance  of  their   firms  among  the  com- 
mercial   houses  of  the  city.     The  rules  adopted   by 
the   board   to   govern   discounts   were   by   no   means 
careless  or  imprudent.     Discounting  days  were  held 
twice  a  week.    Questions  of  discounting  were  decided 
by    ballot.     Xo    advances    for    over     tlo. (»(»()    were 
allowed  by  the  Bank  of  Montreal  without  the  unani- 
mous   c.usent  of  the  board,  and  no  discounts  were 
granted  without  two  responsible  luunes  on  the  paper 
nor  for  more  thau   ninety  days.      Two   votes   in   the 
negative,  or  one  if  there  were  but  five  members  pre- 
sent,  sufficed  to  reject  a  note  or  a  protlered  bill  of 
•  'xcliange.' 

In  other  respects  the  returns  are  of  use  as  showing 
the  importance  which    de])osits  had  already  aciiuired 
for   tiu"    Lower    Canada     batiks,    the    modest    limits 
(.('ontimied  from  pa<;e  40.) 

The  Hank  of  Montreal  reported  for  tlie  Kith  November,  ls:i(l: 
,,.  .  Discdiiiits  for  Discoiinls 

Dihcoiiiitsor  ntliers,tlu)  Diieutors       <,ii  rtills  or 

LoiiiiatoDiruutors.  being- linhle.  ExchiiiiK-e. 

As  iiubvlihials,  e     4,'2()!t  i;      241 

As  partners  .. .     ;1(;,l'04  5:),(](i3  £0,66(1 


Total  debts  due  to  the  1)ank  the  Utii  February,  IS.']!.. . 
Journal  L.  C,  ISIU,  Appendix  :M. 
'.Tournal,  L.  C,  18;!4,  Appendix  S. 
•^.rournal,  L.  C,  182it,  Appendix  Hir. 


Tota  1 
X     4,r)0!» 

1 7'i,r)r!;> 

,£!8l,(i4L' 
.    4!)li,0()l 


4'.> 


lli,e  Cmuulian  Bmd-iwj  S>/sfem,  1817-1890 


within  wliich  tlie  circulation  was  confined,  and  tlic 
lai'u'c  I'cscrvcs  or  casli  in  hand,  which  the  hanks  hehl 
against  their  demand  liabilities.  The  i)roj)ortions  of 
cash  to  circulation  and  deposits  were  tor  the 

in  lSi'4 

Qne})ec  Bank I'S  per  cent. 

:Montre;il  Hank -M     " 


isi'o    i,SL'()    iSL's    i,s;;()    i8:;i 


L".» 


111 


L'(l 


These  ratios,  th()U<;h  not  averajj^es,  nuiy  be  picsunied 
to  be  faii'ly  representative.  Theii*  height  can  be  ac- 
counted for  by  the  situation  of  the  banks,  remote 
fi'om  the  bullion  centei's  of  either  America  or  Euroi)e, 
and  the  conseipient  necessity  of  a  large  specie  store 
to  provide  against  possible  demands. 

l^eginning  Avith  li<'2^>.  there  is  to  be  noticed  a  ra]»id 
decline  in  the  business  of  the  Bank  of  Canada.  The 
fall  in  its  deposits  from  i'll, (»(»(>  in  18:24  to  t'^O".  in 
18:2')  seems  to  have  decided  the  ])r<)prietors  to  wind 
up  the  bank.  It  nowhere  appears  that  the  bank  de- 
faulted in  any  of  its  obligations,  but  the  manage- 
ment, undoubtedly,  entertained  rather  faulty  notions 
as  to  tlu^  privileges  and  duties  of  a  bank.  As  early 
as  18"20  they  had  incurred  discredit  by  refusing  to 
pay  in  dollars.  an<l  offering  to  cash  the  notes  and 
cluMjues  ])resented  foi'  payment  by  tlie  other  banks  in 
half  crowns,  small  and  much  worn  silvei-  pieces. 
which,  though  current  at  an  excessive  rating  by  the 
law  of  the  province,  were  not  available  for  export. 
On  the  28th  January.  1820.  the  Bank  of  :\rontieal  re- 
solved not  to  accept  che(iues  u\H)n  the  sistei'  bank  in 
the  future,  and  in  Api-il  the  directors  passed  a  similar 
resolution  res])ecting  its  notes.'  It  will  be  observed 
that  the  nuirked  change  in  the  account  of  the  Bank 
of  Canada  came  in  the  ])anic  year.  Then  the  capital 
stock,  wliich  was  i:l)2,82r»  between  1824  and  ]82(;.  was 
reduci'd  to  l-:^(>.(»2r)   in    1827,   and   by    18:50  to   f:?. 0.^)5. 

Mi)iirnal,  Ij.  (".,  1Sl".i,  Api)en(lix   II  ii. 


Pmcti.ce  of  the  Jiavks 


43 


In  18;n  tlie  liquidator  reported  to  tlie  House  of  As- 
sembly that  the  bank's  eluirter  havin^r  expired,  all 
business  was  discontinued.' 

Erratic  ideas  upon  the  duties  and  i)()\vers  of  banks 
were  not  confined    to    the  nu'nibers   of  the   Hank  of 
Canada.     The  merchants    of  :\rontreal  pray,  iu  JS:]o. 
that  if  the  letrislature  renew  the  charter  of  tiie  :don- 
treal    Bank,    -care    should    be    takeu  to  protect    the 
interest    of  the    public  by  restrictinj,^    the   said   bank 
from  dealing  in  bills  of  exchanoe,  and  from  issuino- 
bills  in  small  sums.""-  The  lirst  item  of  the  complaint 
was   of  long-  standing,    having   been   emphasized   in 
J82;3  by  the  charge  that  when   the  bank  was   buying 
foreign  bills   it  ceased    to    discount.     The    chartered 
bank,  of  course,  was  both  a  powerful  and   an   unwel- 
come   competitor   to    the    old   priN.tte  dealers   in   .ex- 
change.    For  the   second  i>oint.  the   legislative  docu- 
ments afford  no  other  ])roof  than  that  all   the  banks, 
as  they  continued  to  do  until  J87(i,  issued  circulating 
notes  for  sums  as  low  as  one  dollar  or  five  shillings 
currency. 

A  branch  had  been  estnblished  in  Quebec  by  the 
Bank  of  Montreal  with  an  allotment  of  fHd.ooo  capi- 
tal, and  t'00,()0()  notes  payable  in  that  city.  In  the 
early  years  of  the  decade  the  Quebec  bank  disj.layed 
considerable  dissatisfaction  with  this  proceeding, 
animated,  api)arently,  by  the  belief  that  incorpora- 
tion was  intended  to  establish  at  Quebec  a  local  mon- 
opoly of  banking  for  its  own  benefit.  Some  feeling 
against  the  branch  still  existed  in  \S'2\).  In  a  petition 
of  merchants  and  others  attacking  the  mothei-  bank 
<m  the  general  ground  that  it  had  not  acted  in  the 
public  interest,  there  are  fonnd.  among  otbci'  specific 

'Journal,  L.  (".,  |S3|,  p.  |s. 
-Journal,  L.  C,  ]s;;().  p.  |-j:;. 


44 


The  ('(imulian  Hnnkituj  Si/s/cm,  1817-1890 


ohar^^es,  the  assertions  tluitthc  Bank  of  Montreal  had 
no  riylit  to  establisli  a  brancli  at  Quebec,  that  it  re- 
fused to  redeem  its  own  notes  at  that  city  when  tliey 
were  not  stamped  "luiyabh*  at  Quebec,"  and  tliat  the 
Quebec  office  bonglit  up  at  a  discount  the  notes  issued 
from  ^Montreal.  This  was  the  same  document  in  which 
was  criticised  the  i)ractice  of  tlie  bank  to  loan  chiefly 
on  pai)er  arising  fi-om  commercial  transactions. 

The  charges  wei-c  sei'ious  enough  for  investigation. 
Hut  tiie  committee  who  tried  the  case  acquitted  the 
^lontreal  Bank  of  tlie  monstrous  anomaly  of  trading  in 
its  own  notes.  They  found  in  respect  to  the  othei" 
charges:  {<i)  that  the  office  at  Quebec  had  been  highly 
advantageous  to  commercial  and  agricultui'al  inter- 
ests. }»articulai'ly  to  those  of  t)u'  city  and  district  of 
(^)uebec,  having  caused  a  desirable  competition  be- 
tween the  two  mouied  iiistitutions.  and  that  the  affairs 
of  the  bank  had  been  conducted  oil  fair  and  honor- 
able jji'iuciples:  {!>)  the  charter  did  not  pi'(.hibit  the 
establishment  of  agencies:  (c)  to  redeem  notes  at  the 
branches  was  not  the  practice  of  the  Bank  of  Kngland. 
the  ]>auk  of  Scotland,  or  the  |^)ank  of  the  United 
States;  ((I)  the  Qm.'bec  office  had  not  refusecl  to  redeem 
its  own  issues:  (c)  tlu'  bank  iiad  not  ti'aded  in  deteri- 
orated coin,  but  had  dis(M)untenanced  the  ])ractice  at 
considerable  exjx'use:  ( /')  tht^  l)ank  had  taken  every 
prudent  measure  to  stop  the  counterfeiting  of  its 
notes. 


SO. — FrUTHKH  LEGISLATION 

The  practical  monopoly  of  issue  was  conferred 
ui)on  the  chartered  banks  by  an  act  of  1830  (10  and 
11  (leo.  IV,  cap.  f),  sec.  ii).  On  penalty  of  forfeiture 
of  the  amount  involved,  it  forbade  that  any  note 
payable  to  bearer  or  under   the  value  of  five  dollars 


Further  LenMation 


45 


should  be  offered  or  given  in  payment,  exeept  such 
notes  as  might  be  issued  by  banks  i.u-orporated  bv 
law  in  Lower  Canada. 

In  the  same  year,  tlie  eharter  ..f  the  Bank  of  Mon- 
treal was  continued  to  the  1st  June.  J  8:57.  and  ammded 
in  some  important  respects.     ( lo  and  1 1  ( J,.,>.  IV.  cap. 
(5.)'     («)  It  had  been  found   expedient  tluit  more  ex- 
plicit statements  should   be   re(]uired.      A  n.Mv   form 
was  adopted,    the   changes    being'   such    as   to   show 
among  other  items  the  state  of  the  balance  sheet  of 
the  banks  reporting,     (h)  The  total  amount  of  notes 
in  circulation  for  h-ss  than  11    ."is.  (s.',)  cnrrenev.  was 
limited  to  one-fifth  of  the  capital  stock   j.aid  hi.  and 
notes  for  less  than  Hs.  were  prohibited.     The  legisla- 
ture reserved   the   power   to   sui)press   or   fuiHuT  to 
limit  the  circulation  of  notes  under   five  dollars,  and 
added   the   penalty   of  foi-fViture   of   charter  for   the 
violation  of  either  (.f  the  restrictions  already  imj.osed. 
(c)  In  order  to  preserve  a  competition  in   banking,  it 
was  provided  that  the   charter  should   determine  in 
ten  months   from   the  expii-y  (.f  the   charter  of   the 
Quebec   Bank,  unless  that   were   likewise  c.ntinued. 
or  some  other   bank   incorj.orated  in  Lower  Canada. 
The  next  year,  however,  the  Quehec  Bank  secured 
a  renewal  of  its  charter  to  the  1st  Mav.  18:5(;  (ami  bv  a 
subsequentact.  tothelst  June.   1S:{7).   with   amend- 
ments similar    to    those    imposed   upon  the  Bank  of 
Montreal.^     d    Wm.  IV.  cap.  i:5.)     It   was  permitte<I 
to  add  to  Its  capital  stock  not  more  than  fino.ood.  tlie 
whole  to  be  called  up  within  five  years,  in  instalments 
of  not  less  than  1()  per  cent,  per  annum. 

On  the  nth  February.  ls:Jl.   a  petition  of  Montreal 
merchants  praying   for   the    incorporation  ..f    a    new 

'Provinoi'il  Statutes  of  Lower  Caua-la,  ls:;n,  ,,  .-,71 
'Ibid.,  ]s;!],  p.  IdJ. 


46 


Thr  CitHdilnni  Ihni/cinr;  Si/s/riii,  1817-1890 


I 


l)<ink  ill  tluir  city.  \v;is  presented  to  the  Mouse  of 
Assembly.  Tliei'i^  was  hut  one  hunk  there,  tliey  re- 
cited, •■wliose  ciipital  is  alto^ethei'  ina(U'(iuate  to  the 
circulation  of  the  valuahle  articles  of  import  and  ex- 
poi't  which  its  geo^i'aphic  i>osition  natui'ally  brings 
to  it.  and  which  has  the  effect  of  r(4ardinj^  the  devel- 
oi)nit'nt  of  all  the  commercial  and  agi'icultural  re- 
sourci's  of  which  it  is  susceptible.  Thouj^h  as  yet  no 
improper  iniluence  may  have  resulted  from  a  banking 
monojtoly  in  l\[ontreal.  the  most  effectual  preventive 
of  such  an  evil  is  the  admission  of  reasonable  compe- 
tition with  its  counteracting  influence."'  In  compli- 
ance with  theii'  jtraytM-  the  legislature  passed  an  act  to 
incorporate  thei>resident.  diriH'tors  and  comi)anyof  the 
City  Hank.  On  the  (|Uestion  raised  by  this  single 
successful  i»ro{)osal.  between  1S2I  and  1S41,  to  estab- 
lish a  new  bank  in  I^ower  Canada,  twenty-one  French 
mendMMs  of  the  Assend)ly  were  against  the  measure, 
and  a  mixed  party  of  twenty-seven  French  and  Eng- 
lish for  it.'-  The  ballot  is  good  confirmation  of  Lord 
Duiham's  remarks  upon  the  French  |)rejudice  against 
banks.  ■ 

'.roiirnal.L.  C,  ls:;i,  p.  s8. 

-ihiii,  p.  4;;!». 

'"The  Englisli  population,  an  iinniijirant  and  enterprising:  jiopu- 
lation,  looived  on  the  Nortii  American  provinces  as  a  vast  field  for 
speoulation  and  settlement,  and  in  tlie  common  spirit  of  tlie  Anj^io- 
Saxon  inlial)itants  of  that  continent,  regarded  it  as  the  cliief  busi- 
ness of  till!  Government  to  promote  by  all  possible  nse  of  its  legis- 
lative and  administrative  powers,  the  increase  of  popnlation  and 
the  accnmnlation  of  jiropeity.  They  wislu-d  to  form  themselves 
into  c(jmi>anies  fo!  the  estatilishment  of  l)anUs  and  the  construction 
of  railroads  and  camvls,  and  to  obtain  tlie  power  necessary  for  the 
completion  of  snch  works  with  funds  of  their  own.  *  *  *  * 
The  applications  for  l>anks,  railroads  and  canals  were  laid  on  one 
side  until  some  general  measure  could  be  adopted  with  regard  to 
such  undertakings,  but  the  general  measure  thus  promised  was 
never  passed.  In  all  these  decisions  of  the  A.ssembly,  in  its  discus- 
sions and  in  the  apparent  motives  of  its  conduct,  the  P^nglish  popu- 
lation penieived  traces  of  a  ilesire  to  repress  tlie  inlluence  and  suc- 
cess of  their  race."     Report,  vt  nupra,  p.  lU. 


Further  fjeiji  slat  ion 


47 


Before  the  charter  of  tlie  City  P.ank  reached  th(> 
inilHM'ial  government  reforms  had  l)i'eii  effected  in  the 
En^dish  hiw  against  forgery.  After  \i^\V2  it  was  not 
.1  capital  crime,  and  the  cliarter  from  Lower  Canachi 
failed  of  the  royal  assent  hecause  of  its  severe  and 
inconsistent  i)enalties  against  forgery.  With  a 
change  in  this  regard  the  bill  was  re-enacted  in  \KV.\, 
to  continue  until  the  1st  June,  LSliT,  and  became  law 
on  the  r^d  ^fay.      (:{  \Vm.  I\'.  cap.  '.V>.) 

The  only  novel  features  in   this  charter  were  the 
provisions  concerning  the  first  organization    of  tlie 
bank.     Those  who  jjctitioned   for  incorporation  Imd 
not  begun  a  banking  business:  indeed,  in   IS,"}.'!  tlu-y 
had  still  to  secure  a  capitnl  in  order  to  meet  the  re- 
quirements of  the  act.      The  capital  stock  was  lim- 
ited to  t200.0(»()  in  8, ()()()   shares  of   f^i")  each,  all  of 
whicii  must  have  been  subscribed  and   £40,000  paid 
in.  and  ••  held  by  and  in  the  actual  possession  of  the 
corporation   in  gold  and   silvei-  coin  current  in  this 
province.*"  before  any  note  or  bill  might  be  issued. 
To  raise  the  cai)ital,   subscription  books  were  to  be 
opened  after  a  public  notice  for  four  successive  weeks. 
After  the  amount  was  subscribed,  and  a  notice  pub- 
lished for  three  weeks,  a  meeting  of  the  sul)scribers 
for  the  election  of  directors  to  serve  until  the   next 
Monday  in  June,  might  be  called.     Five  per  cent,  of 
the  subscription  was  to  be  paid   down  at  the  time  of 
subscribing,  the  remainder  in  instalments  not  greater 
than  10  per  cent,  and  .>ii  tliiity  days"  or  more  notice 
from   the   directors,  the  whole   capital  to  be  paid  in 
within  four  years  from  the  passing  of  the  act.     The 
annual   meeting  of  the   shareholders   was  appointed 
for  the  first   Monday  in   June.      At   these   meetings 
were  to  be  elected  the  eleven  directors,  five  or  more 


Ij 


48 


Thv  CanaiUan  liankin;i  Si/s/>-iii,  1817-lSOO 


1)  inj^  umumlly  ro-electod.  In  (»tlior  respects  the 
cluuter  <»r  t]\('  City  Hunk  presents  no  snbstantial 
(litt'erence  to  the  amen(h'(l  charters  of  the  othei'  two 
banks. 

Tlie  mention  of  two  nioi-e  measures  will  be  neces- 
sary to  complete  the  sketch  of  the  bankinj^  legisla- 
tion in  the  old  i>i'ovince  of  Lower  Canada. 

The  charter  of  the  liank  of  Montreal  expired  on 
the  1st  June.  l>s;{7.  It  was  not  renewed  at  the  time 
because  of  tlu;  failure  of  Parliament  to  act  in  the 
case.  The  bank  continued  its  business'  without  an 
incoi'poration  until  its  old  charter  was  re-enacte(l  foi' 
four  years  by  tlu-  Special  Council,  the  4th  ^lay,  18HS. 
The  Quebec  P>ank  and  the  City  I^ank  met  the  same 
difticidty  by  securing  Royal  Letters  Patent.- l)v  which 
theii"  corporate  existence  was  continued  for  one  year 
after  the  termination  of  the  first  session  (^f  the  Pro- 
vincial Pai-liament  tluit  should  be  held  after  the  'iUst 
^lay.  1S:}7.''  The  conditions  of  these  charters  were 
practically  those  under  which  the  banks  had  acted 
since  188:].  Tlie  years  18:37.  1838  and  1831)  were 
marked  by  great  disturbances  in  tlie  Lower  Province 
and  the  suspension  of  the  constitutional  government 
established  in  1702.  In  its  place  was  a  temjiorary 
govei'ument  known  as  the  ••Special  Council  of  the 
Province  of  Lower  Canada.*"'  This  body  extended 
the  cliarter  of  the  Quel)ec  Bank  until  the  1st  Novem- 
ber. 1842.  continuing  also  the  royal  permission  to  add 
£ir)().()()0  to  its  capital  stock.^     This  is  the  first  of  the 

'Ordinances  of  tlie  Special  Council  of  Lower  Canmla,  ISliS,  p.  on, 
1  Vic,  cap.  xiv. 

-7  Wm.  IV,  assented  to  :Ust  May,  ISi;?. 

■The  Revised  Acts  and  Ordinances  of  Lower  Canada,  184"),  p.  3L'0. 

'Created  by  the  Imperial  Act  of  1  Vic,  passed  lOtli  July,  ISIJS. 

■''Acts  and  Ordinances,  iit  xxpra:  "An  ordinance  to  prolong  the 
term  of  the  Royal  ('harter  incorporating  the  (Quebec  Hank,  and  to 


.m.asun.s  n.fVrr.Ml  to.     Th,.  s,.rnM,l  is  ••  an  onlinaMco 
to  iVKulut,.  private  LankinK  and  ti...  ,.ir,.nlnti<,rM.f  tlio 

notc-sof  ,.nvatM,ank..rs/-  /....  „o,,.s  Mot  <,f  anv  hank 
Hiarteivd.  autl,on/<Mi  or  r.M-o^ni/c.l  bv  tli..  l,.oisIatnn. 
nl     Low.M-  Cana.ia,   or  coniiM.tont    aiithoritv    in    anv 
pa.-t<.t  H..r   .Alajosty-s   .loniinions.  or  in   tl.r    I'nit.Ml 
States.     Tl.o  law  forl.a.lo  the  unhcense.l  private  issue 
of   notes   un.h.r  t.-J  eurreney.   on  a  penalty  of  three 
times  the  nominal   value  of  the  notes,  or  of  tT.  <Mir 
••ency  for  each  offcMise  if  the  notes  shonl.l  he  for  less 
tl'an    five    shillings.       Licenses   uen-  to   he  granted 
a.xlerthe  authority  of  the  ordinane<.   f„r  one   vear 
and  puhlished  in  two  newspapers  in  ea.d.  of  the  nties 
-.Montreal     and     (.)uel.ee.      Lin-ns.Ml     hanks     were 
obliged  to  transmit  statements  of  their  affairs  to  the 
«r.vernm(Mit  or  forfeit  their  licenses.      Xotes  for  less 
than  s.,  were   not  to   ,.xeeed   on<.-tifth   of  the   hank's 
<">I"tal.       Severe    penalti(>s    were    also    imposed     for 
Kiviii«'o.-i-eceiving  in   payment  such  notes  as  were 
denounced  hy  the  act. 

F>-om  all  internal  evidenc..  this  ordinance  was  a 
t^'mporary  (.xpedient  for  the  suppr.-ssion  of  the  nu- 
erous  irresponsible  issuers  of  promissorv  notes  for 
cMrculation  that  are  wont  to  appear  in  situations  such 
a^  iHMi  existe<l  in  Camula.  The  only  issues  that 
could  have  come  witl.in  the  purview  of  the  ordinance 
were  o  slight  importance.  None  of  the  concerns 
thus  subjected  to  regulation  an.l  su,.ervisi<.n  survived 

ulllll  lo-±l. 

Both  the  ordinances  d(>scribed  wen-  pro.lucts  of  a 
tune  of  exciteme.it.  agitathm.  disord,.r  and  vioh-nce. 

fxiiii  oank.       _'  \  10.  (.!),  (;a|,.  xxiv. 


50 


'riw  CdHiniinn  /iankiiii/  Si/s/cni,  1817-lHOO 


succ(M'(l<'(l  by  the  rule  of  nuntial  law.  But  tho  Hchcl- 
lion  of  ls:}7.  tlic  second  outbreak  of  insurrection  in 
the  following'  year,  the  mission  of  the  Earl  of  Dui'- 
luini  and  the  attempted  solution  of  the  race  and  politi- 
cal ]trol»lem  hy  the  union  of  tlie  Canadas,  events 
which  ahsorhed  the  attention  of  the  colonists  between 
l.s:{7  and  IS4(»,  cannot  receive  moi'c  than  mention 
here.  The  instability  and  prostrati<»n  caused  by  party 
feuds,  by  civil  wai',  military  rule  and  constitutional 
change,  involve  for  the  commerce  and  banking  of  a 
country  cons(M|uencos  which.  thoUfjh  ovei'shadowed 
by  political  evi'uts,  are  oft«Mi  costly  and  si^iiilicant. 
Hut  any  such  results  experienced  in  Lower  Canada, 
the  etfects  of  the  tinaiu'ial  crisis  of  18!}7.  aiul  the 
suspension  of  s)tecie  paynu'Uts  induced  by  the  com- 
meicial  and  political  confusion,  can  b(>st  be  discussed 
in  connection  with  the  similar  difticulties  encountered 
in  the  same  years  by  the  banks  of  the  L'pper  I'rovince. 
iJefore  takiu<^  up  the  early  bankin<i;  in  I'pp'  'an- 
ada  it  is  necessary  to  notice  the  appeai'ance  .  <n- 

treal  of  a  bank  which  has  ever  since  retained  the 
unique  characteristics  of  its  constitution.  The  French 
bankinj;-  lirm  of  \'if>er,  De  Witt  et  Cie.,  otherwise 
known  as  L(i  liniKiui'  du  Pciiplc.  began  its  business  in 
183;").  It  was  a  co-partnership  in  commcniUnu  or  en 
conniKnitlifc,  composed  of  some  twelve  i)rincipal  part- 
ners or  members  and  an  indelinite  number  of  coin- 
maiKlilaires  or  partners  //<  comuiciidam.  Of  the  prin- 
cipal partners  was  required  a  considerable  contribu- 
tion of  capital  in  each  case;  in  tliem  exclusively  was 
vested  the  maiuigement  of  the  bank,  and  against 
them  ran  a  joint  and  several  liability  for  all  the  debts 
of  the  bank.     The  commanditaires  had  no  voice  in 


Finllifr  I.viiixhiiii))! 


'^\ 


'!"•  "miw,«cnu.nl  .,f  ihc  iKmk.  wnr  ,.x,..ni.|  r.n,,,  nnv 
I'HlMlitylM'Vcn.l  the  .•un..imt(.f  their  suhscril.cd  sK.ck 
an.l  w.T..  (.ntitl(>.l  tc  .livi.lcn.ls  „„  tlirir  .nntiil.tif ions 
"'   I'Hi.l-in  cjipitnl  at    tl,,.   sanir  rate  as   tl...   [.riiu-ipal 
P.ntncis.     (•(....•.•riiiMK   this   hank    Lonl    |),i,lu.ni   rt,- 
niaik<-(l:      .-Thr    cstahlishmcnt    of    the     JJanqiu-    ,Iu 
''""pl<'  I'.v  Kivach  cai.italists  is  an  .nvnt  which  may 
''♦'    n-Kur.hMl    as    a    satisfactory     indication    of     an 
awakening    coninu-rciai  energy  among  th(>   Krench, 
ami  ,t  is.  therefore,   very  mucli  to  he  regretted  that 
tlie  succ«.ss  of  tlie  new  enterprise  was  uniforndv  pro- 
moted hy  direct  and  illiheral   appeals  to  the  nakmal 
reehngs  of  the  race."' 

Statements  of  the  chartered  hanks  of  I.ower  Can- 
ada are  appended  fur  18;M  and  ls:M.  the  hist  state- 
ment puhlislied  hefore  tlie  reheliion  that  I  have  heen 
able  to  procure. 

'Uepdi't,  ut  .Hi/jii-ii,  p.  i."i. 


B 


5.'  The  ('Kiiiulian  /iunkhif/  Si/.<i(ei)),  1817-1800 


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CHAI'TKR   III 
UPPER   CANADA,    ISIT   1S;J'J 

;j7.  —  KSTAMMSIIMENT  OFTIIK   I'.AXK   (»K  Il'l-KK  CANAKA 

TiiK    (|ii<'slii>ii    (.f    iiicoriK.ratiuK    a    l.;nik    first    came 
'••'foiv  the   Houst'  of  Asscmhiy  of   Tpper  Ctuuida  in 
IS17.   the    same    year,    in    fact,    as    the    matter    was 
l)roaclu'(l  to  tli«"   legislature  of  the   Lower   Province. 
<  >n  tlie  nth  Mareli.  tlie  ••^[eniorial  ..f  the  morehants  ami 
others  of  the  town  of   Kingston"  was  presented.      It 
sliowed   that    tile   ••  nicmoriah'sts.   havin;--  talven   into 
consideration    the    ureat    utility    and    advanta^^e    of 
hanks  to  a  connnercial  jteopie.  which  has  heen  evinced 
hy  the  number  which  have  heen  estahlished  in  Eng- 
land  and   the    United    States   of   America   since   the 
Revolutionary  War.  and  feeiin,i-- the  heiu'tit  which  the 
latter  derive   from   the   r.-ady  aid    affonled    them    hy 
their  hanks  to  carry  ou  their  estahlishments  ami  im- 
provements in  their  western  tei-ritory.  which,  although 
of  a  more  recent   date,  is  in  a  more   flourishin*;-  state 
tium  an.v  part  of  this  provim-e.  are  of  opinion   that  if 
found   so   beneficial    in   those   countries   they   cannot 
fail    of   t-ndin-;-  to   the   prosperity   of   this   provim-e. 
The  want  of  such  an  estaidishnient  was  severelv  felt 
before   the    late   war.  and    th.MC   is  hardly  any  doubt 
but    that    the   same    inconveniences   will  verv  shortlv 
)ccur.  whereas  a  well  regulated    bank  would   obviate 


all  these  diHiculties  by  keepiui;-  up 


a  ciri'iilat  inj;-  i>a[)er 


iit! 


) 

I    \ 


>h' 


54 


7'//''  CatMilian  /la/d-iiH/  Si/,sfcfii,  1S17-1890 


to  meet  rvci'v  puhlic  (Iciiuiiid.'"  Tliey  i»ray<>(l.  tlui'c- 
t'ore,  for  iiu*or](or;itioii  <is  tlic  Hank  of  rppcr  Canada, 
with  a  «'ai)itul  of  «: I ()(».()()(».' 

'IMn'  act  of  in('ori>onition  passed  l)y  tlu'  Assnnhly 
and  L('K"islativ(' ( 'onncil  was  icst-rvt'd  by  the  Lii-utcn- 
ant-<i()V('rnoi'foi'tli('  siy^niticationof  t lie  royal  ploasuri'. 
Assent  was  <;ranted.  hut  as  notice  of  it  arrived  too 
late  for  pi'oiniii^i^ation  within  the  jtei'iod  established 
by  the  charter  for  the  i>ank  to  bi-^in  inisiness.  a  re- 
enac^tment  was  necessary  to  make  the  charti'r  avail- 
able.-' The  inhabitants  of  Kin<;st(»n  again  pi'titioned 
in  June.  l.Sll).  ( )n  the  I'ith  July  an  --Act  to  incor])orate 
sundry  persons  under  the  style  and  title  of  the  Presi- 
dent. Directors  and  Conijiany  of  the  Hank  of  Kin*;- 
ston"  became  law  (T)!)  (Jeo.  III.  cap.  I.">.  T.  ('.).  This 
chartei"  was  forfeited  by  non-usei"  till  the  1st  January. 
1821.  The  reason  of  so  extended  a  reference  will 
I)resently  apjiear. 

In  the  meantime  merchants  and  residents  of  the 
Home  District  (the  site  of  tlu;  present  city  of  Toronto) 
l)rayed  for  incorporation  as  the  Upper  Canada  Bank- 
ing Company  They  su])poited  their  request  by  re+'- 
orence  to  the  want  of  a  circulating  medium  before  tlu' 
Army  Hills  were  issued,  and  to  the  pi'ospect  of  a  like 
disadvantage  soon  becoming  oppressive.  The  char- 
ter passed  for  their  benefit  was  reserved  for  the  royal 
pleasure  by  Sir  Peiegrine  Maitland.  1:2th  .Inly.  181'.). ■ 
As  before,  the  receipt   of  the  royal  assent  was  much 

'Journal  of  the  House  of  Assenihly  of  tlie  Province  .of  UpjuT 
Cjinatla,  1817,  p.  lOil,  of  the  MS.  copy  in  tlic  Library  of  I'arlianuMit, 
Ottawa,  Canatia. 

-Journal,  r.  ('.,  lit  .■i'lprii,  ]si!>,  p.  lit. 
I  hid,  p.  4]!i. 


I 


L'shiljJixhmenI  of  Ihc  llinik-  of  Fjijirr  <  inxidd  '*:> 

(lelayrd.  and  on  Iho  ntli  April.  1821,  the  House  of 
Assembly  adopted  the  following  resolutions: 

"I.  Resolvi'd .  That  it  is  tlie  opinion  of  this  House  that  the  estah- 
iishiiient  of  a  Frovini'ial  hani<,  under  jiroper  restrictions,  would  he 
lien«'rKMa]  to  tiie  country,  l>y  renie.lyin«,'  the  great  want  of  specie  by 
securing;  to  ourselves  whatever  advantages  are  to  be  derived  from 
the  issue  of  a  paper  currency,  au'l  by  establishincra  circulating  me- 
dium of  known  security,  instead  of  the  paper  of  private  banks,  un- 
controlled by  any  charter  or  legislative  provision,  and  which,  from 
being  rejected  by  the  Public  Receivers,  does  not  answer  elTeciually 
all  the  purposes  of  trade. 

"!'.  L'rs„lreil,  That  it  is  the  opinion  of  this  House  that  a  I'dll 
should  be  brought  in  for  establishinu' a  Provincial  bank  by  the  in- 
corporation of  such  persons  as  shall  become  stockholders  under  the 
l)roviiii(»ns  of  the  Act;  the  system  to  be  as  similar  as  circumstances 
will  i)ermit  to  that  contained  in  the  liill  formerly  passed  for  estal)- 
lishing  a  bank  at  Kingston,  except  that  to  insure  its  going  into  ope- 
ration, the  amount  of  stock  and  (lejjosit.  and  consequently  of  paper 
to  be  issued,  should  be  reduced.'" 

But  tlie  act  to  incorporate  the  Bank  of  Upper  Can- 
ada became  law  by  the  i)roclamation  of  the  royal 
assent  on  the  t>lst  April.  1821,  and  a  new  act  became 
unnecessary.     (59  Geo.  Ill,  cap  24.  U.  C.)- 

From  the  foregoing  it  can  be  seen  with  what  force, 
greater  even  than  in  Lower  Canada,  the  need  of  a 
reform  in  the  currency  prompted  the  establisliment  of 
the  first  bank  in  the  Upper  Province.  In  the  moving 
cause  of  its  origin  this  institution  differed  little  from 
the  old  banks  of  Amsterdam.  Hamburg  and  Italian 
cities,  tlie  effort  to  escajie  the  evils  of  a  varied  and 
fluctuating  circulating  medium  being  of  chief  import- 
ance in  each  of  these  undertakings.  In  Upper  Can- 
ada there  was  also  the  need  of  an  instrument  of  ex- 
change  less  costly   than   specie,   and  a  hope,  by  the 

Journal  of  the  House  of  Assembly  of  the  Province  of  I'pper 
Canada,  Kingston,  I'.  ('  .  IM'I,  p.  l!Hi. 

-  Revised  Statutes   of   the   Province  of   Upper  Tanaila.  Kingston, 


5« 


Thr  Cauadian  li<nd-inrj  SiiKlvm,  1817-18!»0 


I:.. 


introduction  of  credit  organization  in  some  form,  to 
l>roinotc  tlu>  prosperity  and  advantaj^c  of  commerce 
and  a^i'iculture.  This  purpose.  a])parently  so  dear  to 
provincial  assemldies.  was  sujjj^ested  as  much  hy  the 
examph'  of  the  United  States  as  hy  that  of  tlie  mother 
country.  Of  the  instances  of  American  influence  that 
we  sirall  luive  to  note,  this  is  hy  no  means  the  last. 

Hut  in  its  constitution,  and  in  the  (dutrter  j-estric- 
tions  under  which  it  was  to  act.  the  Bank  of  Tpper 
Canada  presents  few  remarkahle  variations  from  the 
Lowei"  Canada  i)anks  incori)orated  in  1S21.  The  first 
five  sections  of  the  act  are  chiefly  concerned  with 
provision  for  the  conduct  of  suhscription  to  the 
hank's  capital.  The  limit  set  in  1S21  was  t'2(>U,<H)(i. 
divided  into  shares  of  tll2  iOs..  of  which  i'HO.OOO  were 
to  he  suhscrihed  and  i;:2(>  000  in  specie  to  he  paid  in 
hefore  the  hank  should  hegin  husiness.  On  account 
of  the  scarcity  of  coin,  the  reciuirenient  of  specie  pay- 
ment was  reduci'd  in  1822  to  t'Kt.OOO.  (i>(ieo.  IV. 
cap.  7,  U.  C.)  In  182:5  the  capital  limit  iuul  heen 
found  greater  than  the  circumstances  and  commerce 
of  the  province  required.  At  the  rcMjuest  of  the  hank 
it  w'as  reduced  to  i:100,0(Mi  and  --the  whole  amount 
of  the  i)roperty,  stock  and  estate"  of  the  hank  limi- 
ted to  £100,000.  Tiu'  latter  is  a  curious  provision, 
whose  only  effects  must  have  heen  to  prevent  the  in- 
crease of  capital  and  the  accumulation  of  a  reserve 
fund  or  rest  out  of  profits. 

The  important  differences,  in  effect,  from  the  Lower 
Canada  chaiter  wi>  havt>  descrihed,  will  he  found  in 
the  foUowinj;'  details: 

(a  I  TliC  hank  was  to  he  <'stal)lished  at  the  seat  of 
yjovernment  of  the  province,  with  express  authority, 
however,  to  estahlish  hranehes. 


K'<fuhlishment  of  the  llanh- of  V,,,,,,  c„nu,la 


5T 


{In  Xotrs  under  fiv,.  sLilliuffs  were  forl.iddcii 
(;•)   F,>ur   of  the  tift(>en  directors  were  each    vear 
ineligible  for  re-eleetion. 

('/)  Directors  absent  when  the  transaction  was 
authorized  could  avoid  tlu"  personal  liabilitv  f<,r  the 
C'xc-ess  of  debts  of  the  bank  over  thrice  the  pai.l-in 
capital  stock,  plus  deposits  of  money,  bv  inimediat(> 
notice  to  the  stockholders  in  sriu-ral  meetin^^  instead 
of  by  pul)lished  newspaper  notice. 

in  The  bank  could  lawfully  hold  onlv  such  real 
estate  as  was  necessary  for  the  convenient  transac- 
tion of  Its  business,  but  no  limit  was  imposed  on  the 
annual  value  of  such  property.  The  provisions  as  to 
land  inortga-ed  to  the  bank  by  way  of  ad.litional 
security,  etc.,  present  no  variations. 

if)  Oil  refusin^r  payment  of  its  bills  in  specie  the 
l>ank  was  obliged  to  cease  banking  operations,  on 
pain  of  forfeiting-  its  charter,  until  specie  pavment 
sliould  be  resumed. 

{<!)  An  annual  return.  i)rop(.rly  sworn  to.  was  to  be 
made  to  the  provincial  legislature. 

The  charter  was  to  remain  in  force  until  the  1st 
Juno.  IS4S. 

The  new  bank  began  its  business  on  the  1st  July, 
^^'22.  The  chronic  scarcity  of  specie  in  the  province 
and  the  governnienfs  pow.M-  to  subscrilM.  for  stock 
I'uve  lent  color  to  the  story  of  an  unauthorized 
advance  of  com  from  the  militarv  chest,  without 
which  the  bank  would  hav(>  been  unable  to  start  ' 
But  the  evidence  for  this  has  not  yet  been  advanced. 
Ihe  government  did  subscrib<.  f(,r  the  l>.(HI()  shares 
allotted   to   it    by    the   charter.      When    the    rcpiired 

'IVrf.  (H.or,o    Ila.M.e,    "Th.    IJankin^;    Syste.n   of  Canada."   in 
^.luaiiian  hcononiics,'   .Montit-ul,  Iss,"),  ,,.  jj,;. 


i'i 


'■  'SSI 


58 


The  Cnnitdinn  liaukiiifi  Si/sfein,  1817-1890 


<'ai>ital  was  I'cduced  in  IS'ili,  tho  govcrnmont.  thus 
l)i'C()iniiig  llu!  owner  of  a  fourtli  of  the  entire  stock, 
was  autlioi'i/ed  to  ai>i)oint  four  of  the  fifteen  directors 
••for  the  hetter  security  of  the  puhlic  interest. ""'  'IMius 
situate  hy  hiw  at  th.'  seat  of  j>^overnment  and  with 
tlie  f:f()verniiu'nt  entitled  to  sluire  in  its  manaj^cinent 
as  well  as  its  i)ro(its.  the  Bank  of  Upper  Canada 
became  hoth  in  law  and  in  facta  ••Provincial  B'Mik."' 
A  i>ractical  monopoly  of  note  issue  was  conferred 
upon  it  in  IS"i;5  by  an  act  i)rt)hibiting  banks  not  re- 
deeming their  notes  in  specie  within  the  province 
from  carrying  on  business  there.       (4  Geo.  IV.  cap. 


jit 


ei  r'. 


§H. THE  "I'KKTENDED"  BANK    OF    TPPEK  CANADA    AT 

KINGSTON 

It  will  be  remembered  that  difficulty  in  securing 
tlie  required  cajtital  caused  the  charter  of  the  Bank 
of  Kingston  to  be  forfeited  for  non-user.  Neverthe- 
less some  ten  residents  of  Kingston  clubbed  together 
in  1811),  formed  an  association  in  direct  violation  of 
the  law,  invited  persons  to  subscribe  to  the  stock. 
and  opened  an  office  in  Kingston  as  the  President, 
Directors  and  Company  of  the  Bank  of  Upper  Canada. - 
Their  own  subscriptions  they  paid  chiefiy  in  stock 
notes,  but  in  one  way  and  another  a  paid-up  capital 
of  about  ti2,()()()  was  secured.'  By  \S2'i  the  pretended 
bank  had  issued  notes  for  l'lS,J)l)7  14s.  'Mi.,  and  by 
means  of  these  or  of  its  stock,  had  b«.  come  the  debtor 
of  a  great  portion  of  the  inhabitants  of  the  province. 

'4  Geo.  IV,  cap.  xi. 

-4  Geo.  IV,  cap.  xxiii,  Preamble. 

'.Tonrnal,  U.  C,  1825,  Appendix  P>. 


Tlw  " I'relmdetl"  Itanli  of  i'lijwr  Ctotada 


59 


If  rif,^litly  c'ondiU'tcd.    the   ciitcrprisc   luiolit    luwr 
l)et'ii    protitahli',    but    the    iikiiiaj;«'nu'iit   liad    lU'itlur 
honor  nor  lionesty.     Tlicy  soon  ntt(.'in|)t(Ml  i.»  loot  the 
hank,     Two  directors  ah)n('  hoi'r<»\vc(l  a  sum  e([ual  t(» 
llic  paid-in  capital.      Later,  tlie  jtresiihnt  and  a  con- 
federate on  tlu'  hoard  of  directors  oi>ened  a  -sluivin^- 
sliop"  for  lending;  the  hank's  funds  to  indivi(hnils  at 
doul)le    interest.     This    aroused  tlu'   jealousy  of  the 
other  <lirectors.  and  Whitney,  tlie  presich'ut.  was  sus- 
])ended  in  Aug-ust,  IS-J-J.      i'S.ooo  ,,f  reiU'enied   notes 
were    lyin^"  witli  the  ^rontreal    a^cnt   of  the   hank. 
Whitney  forthwitli  h'ft  for  .Alontreal  and  arrived   he- 
fore  the  news  of  tlie  tronhle  was  come  hy  ])ost  from 
Kingston.     He   asked   the    cashier    of    the    Hank    of 
Canada  for  the  parcel  of  notes  and  received   it.    to 
return   to    the   Kingston    hank's   cashier.      Whitney 
used   the  notes  for   liis   own    purposes.     When    the 
quarrel,    tlie    ahstraction  of   over    t'l.ooo   from    the 
parcel,  and  the  refusal  of  Whitney   to  give   uj)   tlie 
remaining  notes  became  known   in   Kingston,   a  run 
upon  the  bank  was  started.     Its  small  store  of  si»ecie 
\vas  soon   exhausted.     Ignorance  only  added  to  the 
popular  alarm  and  intensified  the  demands  for  pay- 
ment.    Note-kiting  or  reciprocity  in  indorsement  had 
been  practiced  freely  by  the  directors,  and  renewals 
granted    without    discretion.     The    locked-up    funds 
could  not  be  realized  upon.     About  the  2:5(1  Septem- 
ber, 1822.  the  bank  failed.' 

•Jou-nal,  -etrislative  Council,  U.  C,  1S2;'.,  p.  11:5;  al.so  .rournal, 
U.  C,  182;',  p.  1S7-20I,  of  the  type-written  copies  in  tlie  Le^'isla- 
tive  Library,  i'oronto;  also  '.Statenient  of  the  affairs  of  tlie  Bank  of 
Uppev  ("anu(.a,  a'.  Kin^'stnn,  taken  from  authentic  documents," 
Kingston,  1840,  pp.  \:\><  et  net]. 


;  II 

.      l! 


:f- 


i;i 


»;(!  77/r  C/Hin/iilti    /,',0//7'y///  >7/^■^V/^   181  7-1  8(10 

'I'hc  (-(mditioii  of  tlic  debts  and  property  <»n  the  (Uli 
Kelnuary,  I82M.  was  as  follows: 

Stuck  paid  in: 

Directors i:;,l.Mn 

Others T.M'fl 

t;ii,i;;(i 

Notes  iinredefineil is,17(> 

Deposits 11(10 

,t:!(>,l.M'J 

Less  directors'  stock :!,"_'4() 

Aiiioiiiit  to  he  piiid tL'Ci.itTO 

Delits  due  to  the  l)ink  hy  hoiid  and  note CL*L',u'27 

Hook  dehts 1  ,<)()(> 

Deficiency  to  he  made  iij)  hy  the  caaliicr r),SS4 

Total  assets f.MM  11 

liisteac.  of  eiiaWlin^  the  sluireliolders  to  enforce 
dehts  (hie  to  the  hank  and  tints  to  wind  np  the  con- 
cern, tlie  le^ishitiire,  in  iH'2'.i.  vested  tlie  stock,  dehts. 
honds  and  ])roi>erty  of  the  hank  in  tlie  hands  of  com- 
missioners for  the  henefit  of  the  creditors.  (4  (reo.  IV, 
ca]».  "J'J. )  The  commissioners  reported  claims  existin,*;" 
against  the  hank  the  3d  January.  IS::^.").  as  £2(5.01)8. 
of  which  1 1 1  .i;{0  were  for  stock.  The  assets  amonnt<Hl 
to  t'18.718.  There  was  a  possihility  (not.  however, 
reali/eij)  of  recovering  from  the  sureties  for  the  hank 
officials  the  i'r).8S4  considered  as  an  ahstraction  from 
its  funds.'  In  the  oi)inion  of  the  commissioners  the 
whole  cajjital  would  he  sunk,  and  even  then  all  claims 
would  not  he  satisfied.  Their  forecast  was  correct. 
The  legislature  tried  to  remedy  the  defects  of  the  first 
act  hy  measures  passed  in  1S24.  182S,  1829  and  I8;}G. 
J^i(luidatioii  dragged  along,  the  commissioners  made 
mistakes,  hy   one  of  them   losing  a   suit  in  which  a 

'"A  statement  of  the  alTairs  of  the  late  pretended  Bunk  of  Upper 
('anada,  at   Kinjiston,"  York,  1Sl'7,  p.  ItiS  (7  set/. 


J'Jronnmir  (Oiil  Poh'/iral  /•Jariroiinii'iil  of  tin'  /liud-       01 

claim  for  1*10,000  was  involved,  and  by  tlic  aihitni- 
tion  w]ii(di  (Ud)t()rs  inij;lit  demand  imdor  tlic  law  of 
1S2!).  many  claims  were  reduced  to  less  than  a  fifth 
of  their  oritfinal  amount.'  But  in  ISI}'.)  the  li-^ai  dehts 
duo  from  the  former  bank  had  been  reduced,  by 
payment  or  scaling"  down,  to  less  than  l',").000.  and 
after  an  unimi)ortant  act  of  1841.  the  nuitter  remained 
untouched  by  legislation  (4  and  .">\'ic..  caj).  'Jt».  Can.) 
This  first  bank  failure  in  Canada,  though  comi)aia 
tively  small  amounts  were  involved,  caused  wide- 
spread loss.  Much  griev(»us  injury  was  intlicted  by 
the  extreme  delay  in  licjuidation.  The  better  ])r()vi- 
sioii  was  made  for  the  notes  issued  by  the  bank, 
t' 11.500  having  been  retired  in  various  ways  by  IS'J.").- 
As  the  worst  sufferers  were  the  dupes  whose  money 
had  been  secured  for  stock  and  then  manipulated  by 
the  directors,  that  extrenu- suspicion  of  banks  of  issue 
which  frauds  ui)on  their  i)aper  currency  made  well- 
nigh  univei'sal  among  Ainei-icans.    was    not    excited 


in  the  minds    of    Canadians 


Thus    tlu'V  were  left 


free  to  consider  more  fairly  the  general  (piestion  of 
banks  and  bank  i-egulation.  a  fact  not  without  its 
importance  in  the  subseciuent  history. 


^0.  —  KCONO.MIC      AND       I'OMTICAL      KN  VI IJONMKNT      oK 
THK    I5AXK 

The  economic  conditions  i:i  .vhich  banking  began 
in  Upper  Canada  receive  some  notice  in  the  petitions 
for  incorporation.  In  })rosi)erity  and  development. 
e.  f/..  the  western  tei'i'itory  of  the  Cnited  States  is  said 

'"A  statement  of  tlic  ailViis  i."    In.'  late  iiretfiuled  IWuik  of  I'liper 
Caiiiula,  at  Kingston,"  Yoiin.  lfc>_'7,  p.  -. 
-Journal,  U.C,  i^J"),  AppfiKiix   15. 


02 


Thr  CmHiiliiin  llind-iiHi  Snslnii,  ISK-IS'iO 


.1 


to  \)v  fiirtlicr  jKlvaiiccd  tluiii  the  ('iUKi«li;iii  pi'ovince. 
y«'t  sui'civ  noonc  ill  ISIS  I'oiild  claim  much  in  these  re- 
spects  for  Iiuliaiiji  and  Illinois,  or  Michij^an  and  Oiiio. 
Twenty  years  latei-.  [^ord  J)nrliam,  leviewin^  the  his- 
tory of  the  ])rovince,  said  with  reference  to  the  ^eo- 
jjfraphical  character  of  the  country:  --Its  inhabitants 
scattered  alon^  an  extensive  frontier,  with  very  im- 
perfect means  of  communication  and  a  limiti'd  and 
partial  conunerce.  liave  apparently  no  community  of 
interest  oi"  opinion."  Tlie  jtrovince  had  no  g"reat  cen- 
ter with  which  all  the  separate  parts  were  connected, 
nur  was  there  an  habitual  intercourse  between  tlie 
inhabitants  of  different  st>ctions.  J)eep  seated  im- 
pediments blocked  the  way  of  industrial  i)r()^ress. 
••A  very  considerable  i)ortion  of  the  Province  lias 
neither  roads,  post  oftlces.  mills,  schools  or  churches. 
I'he  i)eople  may  raise  <'nou^li  for  their  own  subsist- 
ence." the  Report  continues,  "and  may  even  have  a 
iiule  and  comfortless  plenty,  but  they  can  seldom  ac- 
(juire  Wealth."' 

After  the  dei)ressi(»n  of  IS'J.")  and  1S:26  in  England, 
tlie  poi)ulation  was  suddenly  doubled  by  immigration. 
The  value  of  all  species  of  i)roperty  rose  and  the  re- 
sources of  the  ])rovince  were  rapidly,  and  for  the  old 
inhabitants  protitably  develojjed.-  A  series  of  canals, 
designed  to  render  navigable  the  whole  course  of  the 
St.  Lawrence,  was  begun  in  182.").  the  colony  contrib- 
uting lavishly  by  subsidies  and  expenditures  on  its 
(^wu  account.  The  Welland  canal  was  completed  and 
the  Cornwall  canal  far  advanced.  But  the  utility  of  the 
works  was  diminished  and  almost  annihilated  by  the 
failuri'  of  the  Lower  Province  to  assist  by  the  con- 

'Lord  Durham's  Uejiort,  p.  70. 
-Iliid,  p.  .")!». 


J-jviiomic  aiitl  I'olilinil  J-Jurirauinenf  of  llir  lt<tnk       G3 


HtructioM  of  such  pai't  of  the  in'ojcctcd  systt'in  as  lay 
within  its  hordcrs.  Uppj-r  Caiuuhi  iiiciiircd  in  tlic 
fift«M'n  years  following-  IS*jr)a(leht  of  nearly  a  million 
pounds  sterling;.  Sueh  an  expenditure,  achled  to  the 
other  capital  invested  in  the  various  undei'takinj^s, 
had  a  powerful  effect  on  the  mai'ket  f(»r  lahor  and  for 
goods.  Hut  the  only  poi'ts  of  entry  for  Upper  Cainuhi 
wei'e  in  the  liower  I'rovince.  Xavi^j^ation  on  the  St. 
Lawrence  opened  several  weeks  hiter  than  t^oods 
could  he  ohtained  throu<;li  the  United  States,  if  the 
use  of  New  York  as  a  p(H'tof  entry  had  been  allowed. 
^Merchants,  therefore,  were  ol)lii;"ed  to  suhniit  to  inju- 
rious delays  in  theii'  husiness,  or,  hy  iniportinj^  in  the 
autumn,  have  their  capital  lying  dead  for  six  months. 
The  mischief  was  aggravated  by  a  monopoly  of  freight 
forwarding  <'xisting  between  the  river  St.  Lawrence 
and  the  liideau  canal.' 

The  imperial  regulations  with  resjiect  to  trade  were* 
anothei' imi)ediment:  goods  that  the  colony  most  needed 
were  heavily  taxed,  while  the  staples  of  the  United 
States,  the  same  as  its  own  products,  were  duty  free. 
The  moi'e  settled  districts  had  the  stronger  represen- 
tation in  the  Assembly,  and  it  is  said  that  mend)ers, 
in  disjjosing  of  the  funds  voted  for  I'oads  and  like  im- 
provements. W(>re  chietly  intent  by  this  means  to 
strengthen  their  influence  with  their  constituents. 
The  waste  lands  of  the  pi'ovince  had  been  cut  up  and 
close  settlement  obstructed  by  the  I'esei'vation.  due  to 
Mr.  Pitt,  of  an  eighth  of  every  grant  '-for  the  suj)- 
port  of  a  Protestant  cU'rgy.""-  ]\Iany  of  the  best 
tracts,  lying  <»n  the  natural  lines  of  settlement,  were 
refused  by   the  authorities  to    intending  purchasers 

'Lord  Durham's  Iteport,  i>.  71. 

-Golilwin  Siiiitli,  "Caiiiiila  ami  tlie  CiUijuHun  Qiu'stion,"  p.  11:.'. 


04 


The  CiiiKii/iini  littid-iiii/  Sijs/riti,  lH17-lS!tO 


nn«l  ^iven  over  t«>  a  land  j<»l)l>in^  ('(Hn|)an\  wliicli 
lit'M  tin '111  \\  astc  while  sjicculat  iiij;'  t'uf  a  I'isc'  i'olilics 
ill  llic  piovincc  \v»'i('  vidlnit  aiul  Idttcr,  the  stru,<;;H:lf> 
of  a  iicforni  i)arty  against  the  ConscrvativcM.  At  tlu' 
(•Ciller  and  lu^ad  of  the  C!oiiserv;itives  was  the  ••  Kamily 
Compact."  ii  junto  armed  with  otlicial  |»atrona;^t' and 
intlueliee.  st  relli^thelied  by  the  eontrol  of  the  crown 
lands,  and  intrenched  in  (diurcdi.  I)ar.  hemdi  and  gov- 
ernment.      Knrthenii(»re.    the    reveiines  of  the  prov- 


ince were  (leiicieni.  scarcely  meetiii}^  tiie  interest  on 
the  public  debt.  Work  Upon  the  canals  eventually 
lau'^ecl  for  want  of  the  funds,  und  the  meiiiis  of  in- 
ternal iinprovemeut  became  available  oiilv  bv  a  svs- 
tein  of  special  assessments." 

In  the  political  stru^'^le.  the  I'ank  of  Tjiper  (!anada 
cast  its  lot  with  the  ^•overnineiit  and  the  Family 
Compact.  It  had  the  custody  of  the  moneys  of  the 
provincial  treasury:  it  was  the  depository  of  tlu; 
Welland  Canal  Company.  It  was  accused  of  dis- 
tributing;' its  patronage  according'  to  the  partisan 
activity,  rather  than  the  business  ability,  of  candi- 
date:; for  position,  and  of  discriminatinji:.  when  it 
granted  credit,  in  favor  of  the  dominant  i»arty.^ 
There  is  reason  to  believe  that,  though  preferred  by 
a  partisan  committet'.  th.  e  (diarj^cs  contained  a  large 
measure   of    truth."     'Vhv   shartdiolders   of   the    bank 

'.Idiiniiil,  I'.  ('.,  is:;."),  .\pfn'ii<lix,  \ol.  i,  first  report  of  the  Select 
Coniiniltee  on  Tnule  ami  ('oiiiincrce. 

-Lonl  Dmhain's  Report,  j).  ■")(). 

■'Jbid,  p.  r)S. 

^.lournal,  tl.  C,  IS:!."),  vol.  1,  p.  SL',  Seventh  Report  of  the  Coni- 
inittee  on  (irlevant'ess,  .Appendix  xi. 

■'.\  select  coinniittee  on  ti.e  subject  of  liankin;.',  (piite  as  partisan, 
hut  on  the  other  side,  declared,  however,  in  is;!4,  that  "there  was 
never  the  slijihtest  foundation  for  the  insinuation  that  the  Hank  of 
lTp]ier  ("anaila  was  a  dangerous  enjiine  in  the  hands  of  tiie  Govern- 


,1  /'rri'ii/  (if  /■;,r/nt)tsiiiii.  i8;{(>-:{7 


6A 


unv.    to   ;i    «ivjit    cM.'iit.    iiiImts   ..f    lh,.    (•..iu|.;ict . 

'I'll*'  l.im!<  thus  liitd  sonic  iiillii..|i,'r  upon  lcuisli,iion. 
In  ls:!()  and  ls:{|.  tl.c  L.'Kislativr  ('.„inri|  ivj. .<•!... I  a 
I. ill  proposing-  to  incorporate  a  conip.'titor  t(.  tlio 
I'iink.  And  auain.  in  Is.'i:!.  it  reject. -d  two  diartcrs 
passed  Ity  the  Assendtlv.' 


iJio. — A  I'KKion  oi'  i:\i'ANsi(tN.    |s;{()-;{7 

Some  indications  of  a  chan;,re  in  the  I'pper  Canada 
conditions  have  h.-en  Kiven  in  the  remarks  desi^Mied 
t«»  suj.ply  an  idea,  necessarily  inad.'(niate.  <d'  the 
t'con,,mic  situation  in  which  the  hunk  first  carried  on 
its  hnsiness.  in  iSMo  and  Is:?!  the  i>r..si.erity  of  the 
province  was  appreciahly  ..nhanced.-  Towards  this, 
witiiout  doubt,  the  immiorarion  of  IS'JC,  and  IS27 
had  contributed,  as  well  as  the  expenditures  on  pub. 
li<-  works  and  the  stimulus  to  trade  and  industry 
wliich  they  afforded.  But  the  rise  of  land  values, 
the  more  active  operations  in  real  estate,  the  unwonted 
readiness  to  en«-ag-e  in  other  transactions,  and  tin- 
intense  demand  for  capital  to  assist  the  extension  of 

trade  and   aH-riculture,  i)oint  to  tiie  iclusion   that 

the  chany:e  in  Canada  was,  to  no  slitrht  extent,  a  part 
of  the  upward  movement  then  affecting  the  whole 
North  American  continent. 

One  effect  of  the  new  prosperity  was  the  cn-ation 
of  more  bankin<,-  (capital.  The  process  was  furtlu-re.) 
by  borrowers  for  the  increased  facility  in  obtaining- 
h)ans  at  tlie  h-u;,]   rate  of  interest,  by  investors   fo" 

ment,  iifiainst  eitlier  till.  Hank  or  till,  (iovornn.ont."  .luurnal   V  C 
1S;!:;-:U,  Appeiuiix,  p.  ].;(;.     lint  cf.  bonl  Diirliain's  h,.p„rt    p'  :,('; 
Moiiriial,  U.  C,  )s.;.">,  >/t  s.ipra,  p.  2.  i       •  i  •      • 

Mournal,  U.  C,  |,s:;:;-:m,  Appemiix,   p.    I.;l',  Tostininnv  ..f   Heni 
Ihoriie.  ■  • 

O 


66 


The  Cn>iin/iati  Ii,nditi;i  S//sfciii,  ISIT-ISKO 


the  large  divitk'uds  (h'rivcd  from  hunk  sliaros.  The 
paid-in  capiral  of  thi'  Mank  of  rpixT  Canada,  rcitortcd 
at  the  nuxh'st  sum  (»f  l'l(>.()-|0  in  1S*J:>.  had  risen  to 
t'r)4.():57  in  IS'iO  and  i;l(M>. ()(>(»  in  IS:J(».  At  various 
dates  the  l)ank  reporti'd  totlie  legislature  as  foMows  : 

I  '  '  ' 

V^ 1  >    I  t.*.  .1.      A  ■'  «fl 1.     •!     t'       I  «      1        .11  I  < 


Dfc.  l."t,i      Fell.  2.-     Mariih:!.'    I'd.. -.'.i      .Inn.  I,' 
isai  lx:.'«  isj.i  |,s:ai  |s:;i 


•<!  -.  ->       J-  ..-1       1.'<1,41L'        lo.ClS 


Fiiiitls                                )  .,»j  ..,,, 

ami  i)roiK'rtv \  '  i        <              '•  d,),  I  t(,,l.> 

«':i|.itiil  stock  piii.l  in ."i^.o:!!!  7L',(l(;7  7-_',41li  77,4(C'  KKt.dOil 

Delit.s  .lilt' to  tl-"  l)iink.  .  lti7,'>!tS  l7I.S(i!»  isu.Sftl  •.'14,('|."i  •_'(i(i,rM7 

IH'i-.s  diu' liy  tli«i  Imiii;. .  I1M84  :'.:.', ;;7»i  :!•"), In-j  :',s.;;(i;;  :;:i,t;i.'i 

I'.iUik  notes 'in  cin-iiliit'ii  S7,;!;;!'  iL'L'.SoS  I4ii.4s.s  l.")fi,L".Hl  |S7.n:J!» 

Spi'cie  in  vault l(),(Hi(>  i    lM,I77      :':i,l!i(ij  :;:;,i:;4  4l',iI(;4 

It  had  pai»l  regular  divich'uds  at  S  per  cent,  per 
ann'Mn.  ani<»iinting  at  the  (dose  of  ISIll  to  l'4  i  .<»<>'.>, 
and  two  honuses  of  (5  per  ce'ii.  In  all  it  iiad  dis- 
trihuled  some  f.M.oOd  \o  its  shareliohh-rs.'"  In  the 
session  of  ISIJI-I^iihe  legislature  authorized  the  ad- 
dition of  i'lttO.dOO  to  its  capital  in  shares  of  {.'hJ  lOs. 
eacdi.  and  hy  the  same  act  forhade  the  hank  to  loan 
on  its  own  stock  on  pain  of  f«frfeiting  its  (diarter. 
(2  Win.  \y.  cap.  Id.)  An  act  incorporating  the  Com- 
mercial liank  of  the  Midhiiul  District,  rejected  hy 
the  Legislative  Council  ilie  two  preceding  yeai's.  was 
passed  in  the  same  session.  The  principal  olh*  <■  of 
the  Conunercial  Jiank  was  to  he  at  Kingston,  its  cap- 
ital stock  !,'[(»(». 000.  Ileturnswer(  hencefortli  re(|uired 
of  hoth  the  hanks  in  somewhat  greater  detail,  and  in 

'.lounuxl,  r.  ('..  ISL'(i-7   p.  i:!. 
■.lonrnal.  t'.  (".,  IS'JS,  p.  »;i. 
Miminal,  V.  (".,  ISi'It,  p.  (i7. 
'Jonrnal,  V.  ("..  .S.'.O,  p.  — . 
Jomniil,  v.  ('..  I8;)I,  p.  :il. 

''.loiirnal  of  tliu  I.L'Kislative  Aasonibly  ot  thu  Provincu  of  Canadti, 
IS41;  .Xppendix  O. 


Impf  iitl  Ri'iiKhition  of  (^ih)n'iil  lUtuk  C/nn-ffi's         »!7 


the  form  of  Imlaiico  slict'ts.  Save  in  this  important 
i-t'spcct  the  iK'W  and  amended  charter  presented  no 
essential  differenc«'s  from  ilie  ohl  one. 

When  hooks  weie  oj)ened  to  receive  siihscriptions 
to  tile  new  and  a<hlitional  capital  thus  authorized, 
the  puhlic  displayed  the  utmost  ea;^-erness  to  ohtain 
shares.  'I'he  demand  is  the  less  surpvisiii<j^  when  one 
recalls  the  hi<;h  profits  jiaid  hy  the  Hank  of  I'pper 
Canada  without  the  assistance  of  a  rest  or  resei've 
fund,  'i'he  hooks  for  suhscripliou  to  its  S.(HM)  shares 
<d'  additional  stock  were  closed  after  a  sinol,.  day  at 
York,  the  head  office,  and  as  soon  as  the  mail  could 
reach  the  other  offices.  No  person  was  permitted,  in 
the  first  instance,  to  snl)sci-il)e  for  more  than  ei«;jhty 
shares.  Net  in  so  short  a  tinie  suhscript ions  were 
received  for  -jriXu'.)  shares,  or  l-:{'i(t.',»S7  los.'  In  is:{-i 
it  was  ahle  to  pay  out  of  the  premium  on  the  new 
stock  ji  honus  (d'  IS  pi'r  cent,  to  the  holders  of  the 
original  shares,  and  still  earn  its  regular  dividend  of 
S  per  cent.-'  So  far  as  the  an.xiety  of  the  j)uhlic  to 
sirure  stock  was  concerned,  the  experience  of  the 
('ommercial  !^ank  was  precisely  the  same. 


f 


,^11.—  IMI'V.HIAL      KKlit  I,,\TJuN      of      (ol.oM.VL      |!A.NK 
('H.\KTKIJS 

In  AuKMst.  1S:5:{.  after  both  hanks  had  l.een  opera- 
tinj4-  under  the  acts  of  \^H'2  tor  ovei-  a  year,  rumors 
of  a  royal  disallowance  of  the  acts  hecame  current. 
The  hanks  then  had.  in  all.  fiftcM'U  or  sixteen  oflices 
and  a^^encies.  had  <lisc.iunied  pajier  to  the  amount  of 

'.I«iurna!,  f.  ('.,  M;',:!-:;4,  ,S|y|jfii<lix,    p.    \i\-j  ,■!  n,'/.,  Kc|,ort  ,,i'  ii,,. 
Stfifct  ("omiiiittco  oil  tlK*  Siitijc.  t  of  l?aiikiii>r. 
-Journal,  Canadii,  IMi,  A|i|i('imIix  n. 


68 


Thr  ('<i nil, lilt, I  llankimj  SiikIcii,  1817-1890 


i;-ir)().(KK>.  iilid  is-;uc(l  soliir  l:{(»(I.(I(M»  of  notes.  A 
t(.'ni|)oi';iry  imiiir  \\;i>  the  result  of  the  iimior.  for 
debtors  of  the  hank's  ;^reatly  feaiHMl  the  withdrawal 
of  their  cit'dits.  hi  some  phu-es  mass  meetings  pro- 
testetl  against  a  disallowance,  and  ]>etilions  to  the 
Kiiijj^  Were  drawn  up.  hi  several  instances  small 
runs  wei'e  started.  The  hanks  <'ea>ed  discounting' 
for  a  time,  i)Ut  soon  henan  a;^ain.  'Thus,  in  the  lan- 
^ua^e  of  the  day.  they  icstoi'ed  ni'-rcantile  confi- 
dence and  saved  nuiny  fiom  hankriiptcy.' 

'I'he  Commillee  «d'  the  I'ri vy  ( 'ouncil  for  Trade  had 
adoi»ted  in  l.s:{(t  a  seiies  of  rej^ulat ions  apjilyin^'  to 
colonial  hank  charters  and  devised  for  the  i»rotection 
of  the  puhlic  inteiests.  They  were,  it  was  saiil.  ••pre- 
cautions I'einlered  mme  necessary  hy  an  expeiieiice 
«d"  the  pr<'judicial  effects  which  have,  in  former 
periods,  resulted  finm  the  extension  of  the  hankiny; 
system  in  the  nei};lihorinK  states  without  the  i-estri(^ 
tious  they  imjtose.  ■  The  re;;ulations  were  ti'ans- 
mitti'd  hy  the  Uritish  ('olonial  ( Hlice  in  Downing;' 
stfeet,  with  instructions  for  their  ohservance  in  all 
acts  for  thf  extension  of  the  capital  of  existin*;'  hanks 
or  the  creaiion  of  n<w  hanks  in  I'pper  ('anada.  The 
acts  of  ls:!'J  did  not  emhody  the  provisions.  The 
Comnuttee  for  Track',  in  a  letter  of  the  nth  >hiy, 
\^',V,\,  ohjected  to  this  omission:  tlu'ir  recommenda- 
tions were  saiictituieil  liy  the  threat  to  advise  tin'  <  x- 
ercise  id"  tile  royal  preroj^at i ve  to  disallow  the  hills 
in  case  they  were  not  pr<»perly  amended.  The  news 
of  this  action  was  the  cause  of  the  temporary  panic, 
tile  protests  and  petitions  in  Ippei-  Caiuida. 

'.Fournal,  I'.  •'.,  l"»;!;'.-:>t,  >if  nuin-'i,  I'lviiU'iict' ■>[  Mr.  Caitwri^'lit. 
'Joiirnul.  I'.  ('.,  is:;:;-:;4,  p.  i:.;;. 


linpn-iiil  Ui'intlalioH  of  Ctlonidl  Hank  ('Imrlrrs 


»;!) 


All  rxpIniKitory  h-tter  from  the  secretary  to  the 
Knnis  ("oi.miissioiiers  of  the  Treasury,  (hited  .'{Otli 
Oetoher.  is:;:!,  aunomices  the  partial  rehixation  of 
soiiK'  of  til.-  provisions  in  hehalf  of  the  Rank  of 
l'|»I»er  Caiiaihi.  hut  insists  that  th<"  n-^uhitions  speci- 
fied should  1„.  added  t<.  the  respective  (diarters.  For 
the  CoMiinercial   iiank  these  svere    Isriellv: 

1st,  the  charter  of  the  hank  to  he  forfeited  hy  a 
susi)ensi(»n  of  specie  jiayinents  for  more  tiian  sixty 
•  lays,  consecutively  or  durin^r  the  year: 

•i<l.  the  not.'s  for  circulation  to  Ix-  dated  at  the  place 
of  !'?<iieand  to  he  j^iyahle  upon  demand,  in  specie, 
at  the  place  of  dat(>  and  issue,  as  well  as  at  the  prin- 
cipal office  of  the  hank,  it  bein«-.  howevi'r,  expn-sslv 
understoo.l  that  it  is  not  intended  that  any  branch 
shall  h(>  called  upon  to  pay  the  notes,  either  of  the 
princijuil  hank  (.r  other  branches: 

•^''-  nue-:;:i|f  of  t|,,'  capital  stock  to  he  paid  in 
forthwith,  and  the  moiety  at  the  discretion  of  th.> 
l>a!ik: 

Ith.  the  directors  as  drawers,  acceptors  or  indorsers. 
not  to  have  tuoh'  than  one-third  of  the  total  discounts 
of  the  bank: 

"dh.  the  hank  not  to  hold  it^  own  stock  or  to  ad- 
vance tiiouey  on  tlw-  credit  of   its   stock: 

tlth.  half  vcarly  statements  cd'  the  avera-e  assets 
and  liabilii  ^  rn  W  prepared  from  w<ekly  l.alaiu'(> 
siieets  kept  .11  the  hank,  and   ih.'se.   touetli,.|-   with   a 

statement    <d'   the    ratr    and   ai nt    (»f    the   divi<h  nd 

i""'  "t  III"  amount  of  I'l^crved  profits,  to  ho  fur- 
nished to  thr  ;;ovei  iinirut  and  pnhlished:  further 
return-  to  he  furnished  if  calle<l  for.  and  if  r.quiied. 
to  be  verifiod  Upon  oath : 


70  The  CanmllxH  li<nd-in<i  Si/s/em,  181 1-1800 


7th.  the  sliarchohlrrs  to  Ix'  rt'spcctivt'ly  liahh'  for 
tlic  cii^a^rinciits  of  the  foinjtauy,  to  tlic  extent  of 
twice  the  amount  of  their  suhscrihed  shares:  that  is. 
to  the  amount  of  their  subscribed  stock,  ami  to  an 
tujual  amount  in  uchlition; 

Sth.  tile  I>ank  not  to  loan  or  make  advances  on 
lands  or  other  property  not  readily  availal)l<'  to  meet 
its  en;^a;^'ements:  hut  to  confine  its  ti'ansactions  to 
what  are  undei-stood  to  he  the  legitimate  operations 
of  hankin*;'.  viz. .  advances  upon  commei'cial  }iaper 
oi"  t^dvernment  securities.  an<l  <;t'iu'ral  dealinj^s  in 
money,  hills  of  e.\chan<;<'  and  bullion. 

The  second,  foui'th.  sixth  ami  eighth  provisinns 
were  to  be  applie<l  to  the  Piauk  of  I'pper  Canada: 
the  third  and  seventh  to  the  new  sharelmidfrs  only.' 

This  correspondenc<'  was  refei're(|  in  .lamiary  to  a 
sele<'t  committee  of  the  House  of  Assembly.  Uaukers 
ami  merchants  were  called  on  to  ,v;ive  evidence  an<l 
criticise  the  re»;ulations.  On  the  17th  Febi'\uiry.  18:54. 
the  committee  i'e]>orted  that  both  the  banks  enjoyed 
the  perfect  confidence  (d'  the  public,  and  had  con- 
fined themselves  strictly  and  hoiioialdy  to  the  limits 
of  their  charters.  The  committee  a<;reed  that  banks 
with  lari^'e  capital  were  preferable  in  ]>oint  <d'  security, 
and  belieM'd  that  in  a.  future  distribution  of  bank 
caiiital  it  would  l)e  better  to  increase  that  of  existing 
inst  it  ut  ions  t  ban  to  create  new  ones.  They  criticised 
the  i'e<4ulations  with  \-ehemence.  particularly  the  first 
t  Wo.  an<l  the  sixth:  on  the  seven  t  h  t  hev  failed  to  come 
to  a  decision,  but  the  ei^'hth  was  provided  Ww  in  ex- 
isting- chartei's.  Til"  third,  fourth  and  fifth  renula- 
tious   were   already   i)bserved    in    the   pi'acticc   of   the 

'.Iniiriial,  I'.  ('..  ls:;.;-:;i,  p.  (i:'.,  {.i-tlfr  ti  im  llu-  lion.  .1.  f\.  Stewart 
to  I\.  \V,  Hay,  y'.»i\. 


fiiiprriiil  I!rt/i(Iiifi(i)i  of  Co/otu'iil  lltnik-  ('liarlvrs 


:i 


hanks.  ( Jciicrally  iimch  discontent  was  cxiiihitcd  at 
tlu'  imperial  interference.  In  the  mean  lime,  liow- 
over,  tlie  i>i'esi(h'nt  of  the  ('oinmei'cial  liank.  to  avert, 
lie  said,  "-the  rnin  and  distress"  which  immediate 
(lissohition  of  the  hank  wouhl  cause  tiie  sharehohh'rs. 
aji^reed  to  accejtt  the  imposition  of  the  don  hh'  nai»ility. 
'I'he  committee  accordin<;ly  I'cpoited  a  Itill  ajipivin^ 
tliis  and  tin-  tiiii'd.  fourth  and  fifth  pi-ovisions  to  the 
C'ommeicial  J'ank  only.  They  also  proposcil  an  ad- 
dress tn  the  Kiii^-.  emphatically  Iniulin;^  the  chartered 
hanks.  deplorin<^  the  exeicise  of  the  royal  veto,  and 
prayini;- that  the  introdnct ion  of  the  new  ])i'ovisions 
into  the  chartei-s  should  not  he  insisted  on.  The 
address  was  passed  the  :id  ]\la!-ch.  IS:{4.  i»y  a  vote  of 
thirty-one  t(»  one.  Action  on  tiie  iiill  i'ei>orted  was 
postponed,  in  view  of  the  sent  inients  expressed  hy 
the  colonists  in  numerous  pi-titions.  (d"  the  excellent 
practice  <»f  the  two  hanks,  and  of  the  lon^-  time  that 
tin'  acts  of  1S:}-J  had  heen  in  force,  the  Treasury  fore- 
hore  to  advise  theii-  disallowance.' 

The  !;•■  ct  hank  (diarter  passed  in  Tpper  Canada. 
eml)odi<'e  the  second,  fifth,  seventh  and  ei;;htli  of  the 
rey;ulatio  I  ■;  sn^};ested  hy  the  Connnittee  for  Trade. 
Tims,  f  tlu'  first  lime  in  the  ('ana<las.  the  puhlic 
security  was  <;uai-ded  hy  suhjectin^-  the  shareholders 
of  an  incorpoi'ated  hank  to  the  douhle  liahility.  l!ut 
for  i>enalties  for  t he  suspension  of  payments  during 
any  lengthened  period,  for  icstriction  in  the  amount 
of  discount  to  the  dii-ectors.  for  ])»'riodical  puhlicatimi 
of  accounts,  for  the  jiayment  of  more  than  L'M'.'iOd 
of  its  capital,  and  suhscript  ion  to  more  than  L'-lf'.ood. 
no  provision  was  made.      This  was  the  aet    passed  in 

Mnnrnul,  U.  C,  \^'-'>'>.  p.  ii'-'<.  I.t'tlcr  <,f  the  L'lM  Mmv.  I>s:;i,  fti.iu 
v..  (;.  Stank'v. 


I 


'I'll)'  Ciinndiint  /Imi/n'm/  >'//>•//•///,  ISlT -18!)lt 


i 


is:!."),  incoiinirat  iii}4  the  ( loic  Uimk.  sit  iiiitc  iit  lliiiiiil- 
ton.  aiiil  li<ivin<^'  a  iKiiiiiiiiil  capitiil  <>t'  tlDO.ooo,  to 
wliicli  tilt'  royjil  assciit  was  pri>miil<;at(Ml  the  "Jlih 
(k'tolMT.  IS:{."».  (()  Will.  I\'.  cap.  :i4.  I  To  secure  its 
iiidepeiKleiit  iiiaiiageineiit .  incorporated  companies 
were  made  incapalde  of  lioldin^'  stock  in  the  (lore 
ISaiik.  except  sucli  as  slioiild  l»e  conveyed  to  tliem  in 
satisfaction  ot'  del)ts  previously  contracted.  And 
upon  sindi  stock  they  wer<'  not  eiititle(l  to  vote. 
()therwise  tlie  charter  was  li.ki'  the  laws  y;<>verninH; 
the  existing;  hanks. 

The  Coiiunercial  I5ank  had  found  more  capital 
nect'ssary.  During'  the  same  session  it  secured  the 
p«»wer  to  douhli'  its  stock,  /.  c..  to  raise  it  from  tlOO.- 
(KMi  to  l"JO0.(MHi.  The  fourth  and  fifth  (»f  the  Treasury 
regulations  were  applied  to  the  Commercial  hy  this 
act:  the  ("iojith  provision  already  existed  in  the  origi- 
nal (diarter.  IJut  no  precautions  were  taken  to  i»ro- 
vide  for  the  subscription  and  i»ayment  of  the  achli- 
tional  capital,  the  puhlication  of  accounts,  the  ])ersoiial 
liahility  of  shareholdeis,  or  the  forfeiture  of  charter 
upon  suspension  of  sjtecie  redemption  for  more  than 
sixty  days.  (('»  Win.  I\',  cap.  '■V.i.)  The  omission  of 
the  re<;ulations  mentioned  was  repuj;naiit  to  the  prin- 
ciples laid  down  in  Kiifj^land  with  respect  to  the 
estahlishineiit  of  hanking  corporations.  Had  he  ln'cn 
governed  hy  considerations  td"  commercial  policy 
alone,  said  Lor<|  (Jlenelg.  he  could  not  have  advised 
the  ('outirmation  td"  these  acts  in  the  foi'in  in  wlii(d» 
they  passed.  ISut  aware  of  the  importance  at tached 
to  their  conlirmatioii  in  the  province,  and  unwilling  at 
that  time  to  advise  the  disallowance  of  acts  wliiidi 
had  received  the  colonial  sanction,  he  decidetl  n(»t  to 
enforce    those    [iriuciples,    in    the    prt'sent    instance, 


'I'lir  (li'tiirlli  mil/  I'lirv  of  tlf  lin  iihiiui  Manii 


;;j 


against  the  judyiiicnl  of  llir  proviiu-ial  lt';;islatiire.' 
Altli()U;;li  tilt'  iinpi'ovciiiciit  of  tin-  acts  was  iccdih- 
mt'udcd  to  the  iirxt  st'ssioii.  tlic  l){Uiks  first  cstab- 
lislicd  ill  rppcr  Canada  wore  not  siihjccted  to  all  the 
Treasury  r<'<;ulations  until  five  years  later,  when,  in 
I>SH .  the  new  sii^f^estions  of  the  imperial  authorities 
were  adopted  pra(;tieally  in  full. 


jjl2.—  THK  (iUOWTH    AND    (1  HK  OK  THK    liANKlNIi    MANIA 

The  demand  for  accommodation  was  not  to  he  sat- 
isfied, api»arently.  even  hy  these  additions  to  the 
bankinj;-  cai>ital  of  the  province.  Another  phase  of 
the  speculative  movement  an<l  j^eneral  exjiansion  was 
inaugurated  by  a  group  from  the  Reform  party,  'i'he 
faction  in  control  of  the  government,  and  all-power- 
ful, likewise,  in  the  chartered  banks,  favored  limiting 
their  number  and  reciuiring  legislative  sanction  for 
each  incorporation  or  addition  to  cai)ital.  Not  so  the 
ivcformers.  In  1S;51  and  ISIM-;?::?  they  had  proposed 
to  the  Assembly  general  banking  laws:  in  1^:?:?-:M  a 
bill  ••  to  make  general  the  privilege  of  banking:"  in 
ls:{."»  ant)ther  '-to  establish  an  uniform  system  of 
banking:*'  in  lS:{(i  a  third  --for  the  better  regulation 
of  banks  ami  for  protecting  the  interests  of  the  pub- 
lic."'-' They  displayed  generally  the  desire  to  nptm 
tin;  business  to  all  who  should  wish  to  enter  it. 

The  legal  obstacles  to  such  a  freedoni  were  not 
particularly  difficult  even  as  the  law  stood.  British 
statutes  of  I.')  and  17  (ieo.  111.  prohibiting  certain 
small    notes    and     inland     bills    of     exchange,     were 

'Joiiniiil.  IJ.  ('.,  is:;i;,  p. -ji;!,  ijcspntcli  of  lltli  Scptomlu'r.   is:;:). 
-  T7(/(.' .Tiiiiriiiil,  I'.  ('.,  fur  till' years  iiieiitiDiicil. 


74 


The  L'ltiuuliun  /lutdini/  .Si/sfnn,  1817-lbJ»0 


• 


i 


(Icchu'cd  of  no  force  in  Tppcr  Cunjula  by  an  acf  ctf 
IS-JI  cJ  (Jco.  IV.  caj*.  \'2).  and  tliouji;!!  the  lack  of 
corpociitc  powers  to  sne  was  inconvenient,  a  joint- 
stock  association  conid  carry  on  its  hnsiness  and  even 
issne  notes  witiiout  nnudi  (hin;;('r  of  le;;al  penalties. 
A  ]>rivate  hank  started  liy  two  partiu'rs  in  ISIM  was, 
in  fact,  taken  ovei*  by  the  j^ronp  of  iveforniers  and 
orj;ani/ed  nnder  a  deed  of  settlement  as  the  Fanners" 
Joint  P)ankin}^-  Company.  They  be;;an  business  in 
Septend»er.  is:{.'».  with  a  paid-in  capital  which  never 
I'ose  above  L'.")(>,(MI(>.  Ihit  as  the  jnesident  and  solic- 
itoi-  wei'e  both  elected  from  the  dominant  i)arty.  the 
disapp(»inted  Reformers  left  the  bank  and  in  Decem- 
ber, is:}.'),  stai-ted  a  similar  company  called  the  Uank 
of  the  i'eople.'  'I'n-elve  numths  after  this  bank  ojx-ned 
its  doors  with  a  paid-in  capital  of  about  Li:{. (»()(».  the 
Niagara  Suspension  Hridj^e  I'ank  was  established  by 
a  party  of  Americans.  'rhouj;h  it  kept  agencies  in 
('hippewa,  ami  in  Ijockport.  New  York,  its  capital 
was  even  less.  .Meanwhile.  Captain  (Jeo.  'i'rnscott. 
li.  .\..  and  oiu'  ,1.  C.  <  i^reeu.  an  ex-commissariat  orticei'. 
the  former  propriet(»rs  of  the  Farmers"  Hank,  started 
a  weak-kneed  concern  under  the  name  of  the  A<4ri- 
cultural  Hank. 

Hut  it  was  not  lon^  before  an  act  of  is:{7  i7  Wni. 
IV.  cap.  K5i.  laid  down  the  principle,  ever  thereafter 
to  obtain  in  Canada,  that  it  is  •inconsistent  with  a 
due  regard  to  the  pi'otection  of  conunerce  and  the 
w(dfar(>  and  security  of  the  peojde.  that  any  person 
or  number  of  persons,  some  of  whom  may  be  of 
doubtful   solvency,  should  be  allowed,  without    le^is- 


'  ■'!\<Miiiiiisc('nc('s  of  liis  Piililic  Lift',"  liy  Sir  Kranci.s  llinclxs,  p. 
II,  ami  .li)iiiii!il,  r.  ('.,  is;'.7-:'.s,  Ajiiu'iniix,  p.  L'lii!,  also  .Idurmii  U. 
(".,  is:'>7,  I'll  Session,  .ApptMiiHx. 


The  (iroirlh  <ni'l  Cuir  of  the  lidukiiiij  Mania 


7.) 


lativc  autliority.  to  issue  their  itromissory  notes  lor 
circulation  as  money."*  A  sununary  stop  was  put  totlie 
increase  of  such  Itanks  hy  niakiuK' unauthori/eil  note 
issue  a  niisdenu-anor  after  the  1st  .July,  and  contracts 
concernin^^  the  notes  null  and  voi<l.  Kxcei»tions  were 
granted  in  favor  of  the  four  i)rivate  hanks  just  men- 
tioned and  the  Hank  of  British  North  America. 
Other  hanks  were  eiiahled  hy  7  and  S  Wni.  1  \'.  c:ip.  I . 
to  collect  their  dehts.  enforce  the  payment  of  stock 
siihscriptions.  and  close  up  their  afl'airs  throu<;h  com- 
missioners ajtpointed  under  provincial  authority. 

'I'he  mention  of  certain  attempts  t«t  idler  the  h-uis- 
lation  dealing- with  them  conveys  no  idea  of  the  craze 
for  hanks  antl  the  t  xcitement  on  hankin-;-  <|Uestions 
which  sj)read  through  the  piovince  at  this  time.  .\ 
hotter  indication  is  the  f:ict  that  hetween  ls:il  nnd 
IS4(>  no  less  than  twenty-five  puhlic  hills  on  the  suh- 
ject.  whiidi  eventually  failed  «d"  passinu'.  were  hrou.-^ht 
hefore  the  Assemhiy.  and  received  more  or  less  con- 
si(h'ration.  Naturally  an  agntation  carried  so  far. 
carriiMJ  on  lai'g-ely  in  the  intei-ests  of  itorroweis.  and 
carried  on  in  ti  time  <d"  unusual  activity.  (»vtr  trading' 
and  liind  sju'culatiou. '  was  not  entirely  for  measures 
reconnnended  hy  jMudence  or  sound  jtolicy.  hi 
I8;{:{  the  lf(»use  (d'  Assemhiy  passed  a  hill  to  cnahle 
the  Keceiver-(iener;d  to  issue  hank  notes  c  hargeal)le 
on  the  puhlic.  A  select  coimnittee  in  IS:!.")  reported 
in  favor  of  estahlishing  a  jirovincial  hank  on  the 
hasis  of  loans  gunrante.'d  hy  the  ji  •ovince.  the  prolits 
to  ]>ay  the  interest  on  the  puhlii-  ()<d)t.' 

Moiirnal,  I'.  C.  lM17-?s,  UppLit  i)f  tlie  Selcri  Cominitti-e  U|M,n  tlie 
Sahject  of  liankiii^'.  Appendix,  p.  •_'!•.'. 

-Joiirnal  (if  tlie  I.etriHliitivc  ('(Hiiu  il  of  tin-   Province  of  Canada. 
18:'.7,  .Appendix  A,  Kvidenci'  of  Mr.  Cartwrifrlit. 

'Journal,  l'.  *'.,  I"^:i"',  Appendix  iii. 


t 


i 


i 


II 


To  Tlir  t 'iiiiiii/iini   AVo/^///// >'//.«/»'//<,  181  T-IHIMI 

Sucli  ••siiniilt'  lisciil  ;in'im;;('in»'iits"  found  no  I'jivor 
with  tin-  ('oloiiiiil  (  Mlicc  in  London.  In  it  drspatcli 
dated  tli.:!|st  August.  ls:!(;.  Lord  dlcntdu'.  Mis  MaJ- 
csfy's  I'rinciiial  Secretary  ^t\'  State  tor  the  Colonies, 
radiealiy  altered  tho  manner  in  which  the  acts  passed 
Ity  the  lejj;islatiire  of  rpjtcr  Canada  with  rrs]irct  to 
hanking"  and  currency.  ac<|iiirid  statutory  force.  For 
ten  years,  at  least,  the  laeutenant-(  Joveiiior.  unless 
thei'e  Were  peculiar  reasons  for  resei'vinji^  it.  nad 
granted  tlie  io\  al  assent  to  suidi  measures  at  the  close 
of  the  session  in  which  they  were  passed.  Thus  they 
iiecame  law  imme<liately.  If  the  nieasui'cs  were 
unsatisfactory  to  the  Colonial  ( >f!ice.  the  icmedy  was 
to  advise  the  royal  disallowance,  after,  jterhaps. 
numerous  and  important  ent;a.nements  had  lieen 
entered  into  under  the  acts.  I'.ut  now  the  Lieutenant- 
(Joveriior  was  instructed  not  to  permit 'O/// act.  oi'din- 
ance  or  regulation  touciiin^  e  circulation  of  prom- 
issory notes  or  the  local  lei;al  tender,  to  come  into 
operation  in  the  colony.  with<»iit  having  lirst  icceived 
the  royal  sanction  conveyed  to  him  l»y  the  Secretary 
of  State.'  The  Assenddy.  at  this,  passed  I'esidutions: 
with  the  Legislative  Council,  they  adopted  a  joint 
address  ti»  the  Kinj;'.  In  this  they  alliiined  that  hills 
for  estahlishiu};'  hanks  were  purely  htcal.  and  thou;;h 
acknowleduiii^-  the  constitutional  rij;ht  (d"  His  Maj- 
esty to  act  his  pleasure  uiton  any  hill.  sti'ouyl.N  dep- 
I'ecated  the  exercist*  (d"  that  ri};ht  upon  nuitters  of  a 
local  nat  ure.-' 

The  minister^  ol  i  he  crown,  however,  had  ohser\  •  d 
the  pro;^ress  of  commercial  s|)eculations.  jtarticularly 
in  .Vorth  America.  Tlu-y  saw  only  too  mmdi  reason 
to  anticiiMte  the  rapid  approach  of  a  periotl  in  whi(di 


.Idiiriifil.  I'.  ('.,  ls:i 


!' 


.lonrniil.  I'.  ('.,  Juth  .laiiuary,  ls;{7,  pp.  ;5l'|, 


\U 


Tlir  (iriiir//i  and  ('mi  nf  ll,r  litiiikuni  Mniiin  t  */ 

tlic  imiltipli'-ation  *>\'  ill  s.-ciin-d  nprfscMtJilivrs  .»f 
roiiifd  moll.  V  woiiM  iiivolvt"  tin-  I'.rilish  A  ni.ii.ini 
C(»l(»iii('s  111  most  sfi-ioiis  MnaiM-iui  diflinilli' ^.  I  In-ir 
siii;;lr  rcsitiircc  tojivrit  the  .laiiK»-r  Wii>  til.'  n.vjil 
pitwcr  ot' (lisiillowam-f.  Imt  tin-   <'.\t'itioii  of   tlii>   \va^^ 

alwa.vs  r.  hictaiit:   when  hnn''  «a|>itals  lia«l   i n   nii- 

hark.d.  ;iii.l  many  cuiitracts  ma<lr.  it  w.is  .xt irm.ly 
(iillicult.  'riic  it'srivatioii  of  ilic  hiws  for  tli.-  imp  'lial 
sanction  lirforc  tlu-y  cann-  into  ^^\]^v^■\  was.  t  in  iffor<\ 
the  only  practical  plan.  I'.ut  tin-  inst  iintion.  u  .tc 
not  the  oiitconu' «)f  occasional  niotivt  -  onl>  .  or  ot  a 
policy  nu'rcly  temporary.  'I'iicy  were  promjitctl  l«y 
tlic  permanent  pnrpose  not  to  allow  tin-  creation  ot 
corjHirate  bodies.  i»ermitted  to  issne  a  paper  (  urreiic\  , 
••without  all  tin-  necessary  limitations  upon  its.xteiit 

1       1 I      ..1 .,.«..!•     ■■   I 


and  legal  cliai'acter 


and  legal  ciiai-aciei-. 

Kvents    proved    that     Lord   (ilene|g"s    iii-^t  met  ions 
were   well  advised.      hnring    the   session   of    |n:!C.-:{7 
the  hanking  mania  s«'eins  thoi,. uglily  to  have  infected 
both  the  legislature  antl   the   whole  province.-      Kills 
were  passed  to  increase  the  aggregate  capital  of  the 
chartcreil  hanks  in   this  provinci'  »\'  -Kin.diH.   p.-ople. 
from  l-.">(»(t.()(M>  to  i:-1. .■»()(>. <><»(>.  and  to  confer  a  power  of 
issuing  n(.ti-s  to  the  extent  of  l'i:?.:)(to.(i(K». '     Nine  m-w 
hanks  were  a  part  of  th-'  scheme,  another   feature  of 
which  was  to  make  the  jtroviiice  a   large  shareholder 
in   the    jiank   of    I'pper  Canada.     The   etVect   of    the 
latter  woiihl  have  heeii  to  render  the  hank  one  of  the 
chief  department  soft  he  local  administration.    Atcoid- 
ing  to  instructions,  the  Lieutenant-!  lovernor  roei  veil 
the  hills,  and  sent  them  on  to   Kngland.      There   tiny 
met  the  scathing  criticism  they  deserved      Tin    im|'<'- 

.loumal,  V.  <".,  |s:;!i,  p.  tit  u,  Di'spalch  i>f  tin-  L'^tli  I)«m-..  Is:'.!'. 
!('f.    77/«  /'iitrc't  lU'svHiiiiper.  Toronto.  Ihmh' of  Mil  NovcihImt,  \<M\. 
'.loiirmil.  I'.  ('..  IsJM'i.s,  p.  •Jll^. 


Mourmii,  I'.  ('..  isj:.:;.s,  \..  •Jll^ 


78 


Tlie  t'iniitilinn  linnhinn  Sjislnn,  1HI7-18!»0 


rial  iunliiiritifs.  iicvfrtlirlcss.  were  willing  lU'itlicr  to 
(lisjillnw  the  wlidlc  scries  iioi-  t»»  jtick  out  the  iiiiol)- 
j«*ctioiial)l«'  measures  worthy  ol'  passing.  Decision 
was  suspended  I'or  the  tinu'  heinj^.  None  of  tlie  acts 
was  allowed  to  take  elVect.  hut  all  wer«'  referred 
hack  to  the  cidouial  legislature  for  nioi-e  soher  eonsi- 
ileiatioii.  Mefore  rarliaiuiMit  a^aiu  met  in  regular 
session,  events  in  Caiunhi  somewhat  calmed  the  hank- 
ing- excitement.  Not  ii  sin^'le  one  of  the  reserved 
hills  was  re-enacted.  In  Decemher.  \^'M.  a  se(!oiul 
series  of  rules,  drawn  up  h\  the  (  ommittee  for  Trade, 
and  recomnu'uded  hy  <;reat  e.\|»erience  and  much 
car. "fid  I'etiection.  were  forwai'ded  hy  Lttrd  ( Jlenel^, 
with  tlie  advice  that  they  should  he  adopted  hy  tho 
local  legislature  for  its  own  j^uidance.  and  as  terms 
to  he  insisted  upon  in  all  charters  foi-  the  incorpoi'u- 
lion  of  iiankin;;-  companies.  The  instructions  so  dis- 
liked  hy  t  he  colonists,  the  occasioiuil  motives  for  tnem 
having  disappeared,  were  withdrawn  at  the  same 
time.' 

(>nly  the  insistence  of  the  imperial  authorities  se- 
cure<|  to  I'liper  Canadians  the  additional  sufe^uar<ls 
in  the  hank  acts  of  IS;{.").  In  IS:}()  and  \^'M  only  the 
firm  restraint  and  cool  judgment  of  these  officials 
saved  I'pper  Canadians  from  the  conse([Uences  of 
their  hankinjjj  frenzy.  The  instructions  of  xVugust 
prevented  the  estahlishment  of  hanks  with  a  nomi- 
nal caj^itul  of  over  foui'  millions  sterling,  on  the  eve 
of  the  most  disastrous  crisis  which  North  America 
had  ever  experienced.  They  mitigated  in  jj^reut  de- 
gree. thouj;h  they  could  not  avert,  the  calamities 
which  were  soon  to  hefall  the  provincials  in  eonse- 
(luence  of  their  own  mistakes,  and  susi)ensi()n  of 
specie  payments  in  the  United  States.     Where  super- 

'Journal,  U.C.,  is;{(t,  p.  40  v. 


I'lUvliiC  of  tke  Hanks 


TO 


vision  !)>■  tin-  Colonial  Oftlce  over  cojoiiial  IcMfislatioii 
jiml  'rrt'iisiiry  rcKuliition  of  ciilonial  l»ank  cliarttTS 
attain  appt'ar  in  oiir  iianativc.  then'  will  Im-  found 
a.lditioiial  jnoof  of  tlu-ir  L.-ncticial  inlhimcc  upon  tlu; 
CaniMlian  l)ankinf;-  system. 

:J|:{._IM!.\(  TICK    OK    TIIK    HANKS 

Tlif  details  in  whicdi  the  business  carried  on  l>y  the 
Tpper  Canada  hanks  in  the  thirties  differs  fnnn  that 
of  the  ()ntari«»  l)anks  of  to-day,  were  due  partly  to 
conditions. luirtly  to  principle.  Slow  conununications, 
e.  f/..  caused  e.xcluinnes  hetween  the  hanks  to  l»e  less 
fre(|Uent:  they  were  effected  we«'kly  instead  of  daily. 
But  s»'ttlenients  were  made  in  drafts  on  Montreal  (»r 
New  York,  or  in  spcM-ie.  practically  as  they  are  to-day.' 

The  small  amount  of  « 1    collateral   security,  hoiids 

and  stocks  in  the  province  caused   more  loans  to  he 
made  upon  ])ersonal  secuirity.  /.  c..  notes  with  one  or 
more  indorsements,  and  fewer  loans  secured  hy  docu- 
ments,     in    the    scarcity  of  marketable    pers(»nalty, 
tlie  hanks  suffered  K'<'iit  temptation  to  loan  ui)on  real 
estate    security,    in     forms   more    or    less    dis;;iiised. 
Kvents  i)roved  that    iKtt    all   of  tliem    resisted.      The 
Commercial   Hank    introduced  a  system  of  cash  cre<l- 
its    in    imitation    of    the  Scotch  practice.     Where   a 
hank's  customers  have  little  other  wealth  than  land, 
this  is  a  pretty   close   approadi    to  loaning'  ui)on  the 
security  of  land.      It  is  doubtful,  too.  whether  proper 
conditi(»ns    for    extending-    cash    credits    existed    in 
Canada.     Certainly  there    was  no  analo^^v  between 
tho  constant  market  for  Sct.tch   real  estate  and  the 
occasional  oi)portunity  to  sell  Canadian  lands.     And 
Moiiriial,  U.C,  1S;;7,  iM   Session,  Apppndix,  Heju.rt of  the  Seltn-t 
(■omiiiitti'e  to  wliuh  was  referred  the  siiliject  of  the  Monetary  Svh- 
teni  of  the  Province. 


f 


8(t 


'/■/((■  ('(imidiiui   Hdiikimi  Si/.s/n,i.  IMT    IMlO 


yet  tin-  piicr  iiiidcr  tlu.'  auctioiircr's  liaiumcr  is  llic 
only   test  of  tlu'  iiniiicdiatcly  available  valiir  of  laiul. 

V\>  t(i  li^'A'J  the  Maiik  of  rpjitr  Canada,  iiavinj^  no 
l»»cal  coiniM'titoi's  lo  |it'«>sfiit  its  notes  for  I'tMlcniption, 
was  alilc  to  kt'cp  ont  a  larK<'i' <'ii"<'iili>tion.  And  with 
the  help  of  this  it  ronid  discount  for  nincts  days 
with  iravc  toiftir*  hy  payments  of  one  tiflh  every 
three  months,  the  t<Tm  of  credit  heinj;'  tifteen  months. 
The  extent  of  its  operations  in  those  palmy  days  has 
heen  indicated  hythe  relnins  already  ;;i veil. 

In   l^:{(i  the  three  chartered  hanks  repmted:' 

liiiiikiii  l°|i- rniiiini'iciiil  (J,,,.,,  ii.iiiK 
(in- CiiiuiiIm.        ItaiiU,  Nov.:;'* 

N>pv.  lii,  N<i\ .  7.  \XW\ 

ISiti  IKlti 

1,1  Mill  I  iii>  vsliilli.i>;s  and  peiu'i' 

iii'iitle<i).                           1  i;  i;                   C 

Capital  stdfk  (iiiil  ill 'Juu.ihmi  !Si;,lV.i          ti|,(i(i'> 

Noti'i  ill  (•iicnlutidii,  $.")  and  iipwMs.  Isn.si'ii  ll'.t.s;:;            I,f>l7 

Null's  i'i  lirciilatioii  uiiiltM- .*"i |."i,s'_'H  .■>'),'j,"in          L'7,'.ii:< 

llalaiiccs  due  tn  otlicr  liaiiks \.'.W2  )  m  s'l 

r.aianct' diu' tu  ajroiicifsiiii  iiaiisitii)  7SS  \  •' ' 

Casli  dcpimitt'd,  iiicliidiii^  ali  siiiiih  ' 

not    ill   till-   I'oro^oiiit:    lirads  and 

not  ln'iuiin;  iiilt-n-st lol.tKH  L'".>,|t;.'»           ii,211 

Casli  di'poHiled  lii'uiiiijj  iiitcH'st .  .  .  .  :>.0|ti  4,"_'n|             l.ii.Vl 

r)S!i.4'Jti         »(i.".,77l  'iti.L'lL' 

Uksciiki  i:s  <(i'  Tin;  I!  \nk, 
(iuld,  silver II lid  < it luTfoini'd  metals 

in  tlif  viiiiiis  i)f  tin*  liaiik i;:!,7'.ni         tii, !»:'.">        •.'u,h:;'_' 

Ufa!  I'siatf  and  liaiik  fiiniitiir*' s.smi  '.\,~'2'>  s.J7 

llilirt  (if  (>tln«r  liaiikH |s,(t»')  ."i,:!lN  •_',tif.' 

RaiaiK-i's  dni>  tiom  other  Imiiks  and 

foreign  ai/eiieies   in    l.nniinn   and 

New    Yciik    iin    excliaii^'e    trans- 

actiiins S|,7-.'s  Is.dS'J  :!,;?M.') 

Amount  (if  all  delits  due,  ineliidiiiL' 

notes.  Iiills  of  i>xclian(;e,  and   ail 

Hlock   and   fiindeil  d(  lis  of  every 

description,  except  in  tlie  luilaiices 

«hu>  from  otiier  lianks Ii:;,!t7ti       :;:!!, 7iii»         (iS,.'i(i4 

Total  resoiircBB .Ys'.i,  r.'t;       |it."i.77i         !tti,:'lL' 

Misci:i.i.AM-:ors.  I  | 

.A.noiint    of   reserved     pidlits    after 

deciarill^' tlie  last  dividend II, (•7:'.  I.IM'J     ' 

Overdue  delits .">(i,:;.Vi  ll,."iSl.'  l.liL'l 

'.ioiiriial,  I'.  ('.,  is:;7,  pp.  7::,  s!',  IL'S, 


f 


I 


rncttrr  itf  llir   l!,t,i{-s 


HI 


I"    l'^:{:   tlir   priiiripjil    it.-ms   f..r  th.-  clKu-t.-nd  as 
wi-ll  as  111,'  |. rival."  hanks  wciv.  on  tlir  LMh  .limr  :' 


fl-xU        »:iiviilii.       S|.ccU.      I).|„,«,u  iiri.l 


It^'i.k  Ml  I  ,,,,..,(  ana.la   L'.Hi, i     |.;s,.«m;      ::7,,s.-„.    i.o,s,v,s         4».j.i:,s- 

,-.'n..H.rna|    |ta„k....     |...i,V,.7     1  Ki.ui.i'       L'::,|()l.'      ::7..H|  !    |uss 

*•""•  '"'"' ^'--^l^    ;!l.:^l.i      I7.!.:{-      s;:{7!.        1.'^.,^ 

T..i;il  cliiuKT..,!  1,'ks    l7"i,M7s    ;;i't,:.'ii      7s,ss|  "ji7|^^f^j         s!i.\(.:{;i 

huim-,^-  lianU :(n,-|       -;  vin        ;,,,;,i„  ..    .  ;,,,•;,,, 

Miuikuitl...  IVu,,|,.  ,::,:;7^      |..,;:;:;       .\,!,(i       7  i:!!..         - 'v 

A*:,  ..■ult.ua    15ank....     ;;...7:^7       |s..,|i:        1:544        ;  ifii  •  ^i' '  m 

T..|;.l  p.ival..  hanks.      m,s,.il-;;       7I.I|s       1I.|:,7      |7,:!-n        "|.»:r7|s 
"'■""•'•"•"' :.75.o.>i    ;;-.i.,:{..j     !i::,::ii  - -i.i.s'.;.     i...::!.,7:,7 

'I'lic  valii.-  ..f  .•(.jM|(,.titi..ii  in  ha.ikiii-  was  w.^ll 
illiist.at.-.l  u|„.n  til."  C.min.T.ial  llai.k  .i.t.iv.l  tl... 
I  I'P'T  CaiKi.la  li.l.l.  h  was  a.  tiv  in  |.r,.s,.nt  in;,-  lli.- 
iK'tcs  ..f  the  .-..iMiM'tinu'  l.ank  t..i-  r.-.|..|ni.ti..n.  \  \nn: 
s.ni  s.vnrinKMhc.lisc.nnf  ..fa  n..l.- |.a\  al.lc  in  nin.-lv 
Ways  (■..ulcl  M..\v  liav,.  it  r.-n.-w...!  f,,,-  a  tintli..r  [...riod 
..f  nin.tv  .lays  only  .Ml  payni.'nt  ..f  ..n.'-i|iir,|  ..f  tli." 
"riuinal  a.l\  an.-.',  an.l  at  th.'  .-xpiry  of  tins  s..c..n.l 
l>''n...l    it    was   n.scssaiy  t..  pay  l.a.k    a   s.vo.i.l    tliini 

"''  " li-inal   a. Ivan.-.,   if  tin-   l...n-..w..i-  wisli.d    t.. 

Ik.v,.  til.-  tini.-  f..i-  payin;.-  tlic  last  tliir.l  .•.\t.-ii.|...|  fo,- 
a  fnitli.-i-  p,.ri...l  of  nin.'ty  .lays.  Tlic  \vli..|...  ani..nnt 
nf   til.-   a. Ivan.-.-,    im.l.-i-   t'lis   anan-.-m.-nt.    was    not 

■yi''''''    '""''    "'"'•    iM..nllis   aft.-r    ii    ha. I    1 1,   ,na.|,.. 

'rii.-  n-siilt  was  ;;.„h|.  f,,,-  (h,.  t.-iin  .liirin-  whi.h  ni.-r- 
••liants  Wfi-.'  ivsponsihjr  as  in.h.rs.Ts  was  h'ss.^n.-.l : 
th.y  w.'iv  ah!.'  nioi,  a.-.-iirat.-ly  to  provi.l..  f.M-lh.'ir 
liahiliti.-s:  an.l  p-'tvon^  ..f  ino,|,.rat.-  n.--ans  l.onow.-.l 
■  I'liiri.al,  I'.  ('.,  |s:i,,   ,,|,.  7.;^  v,    |._.,s. 

t; 


S-?  TIf  CxiiitUiini  llinihimi  Siif!lnt),  18K-I8!t() 


less  than  iM'fui'c.  and  iiol  more  than  ciiuld  Itc  paid  in 
111!"  slnulrr  tinu'.'  'riic  t'lirtlirr  advanta^^c  (d"  ^^•(•nl•- 
in;.-;  rir(|Hrnt  tests  nt'  tli«'  conNcrt  il»ilit>  of  liank  notes, 
Ity  actual  I'l-dcnipt  ion.  need  only  lit-  nu'iit  ioncd. 

Cliarti'ifd  as  well  as  private  lianks  cstalilishcd  no 
l)fan(die>  in  the  sense  that  their  notes  weic  payalde 
at  any  other  phice  than  theii-  piineipal  eslal»iisli- 
nicnts.-'  The  phiii  of  redeeniin;^'  Itank  notes  at  hut 
one  jdaee.  .iud  that  tlie  hanks  head  oflici'.  permits  an 
eeououiv  o|'  spi'cie.  a  stnuiL:'  central  resersc.  a  sta- 
hility  and  securitv  in  the  l>ank"s  own  procedure  tiial 
Would  'oe  inipossihie.  with  I  lie  >arne  rale  of  j  troll  t .  wei'  ■ 
it  neee^saiy  to  niect  denian<l>  for  rede nij it  ion  at  all  t  he 
olhce>  1'^  the  hank .  <  M'  what  wcii'  technically  termed 
oMices  of  d  i^coutil  and  depo>it .  hut  I'eally  Iti'aiich  haid^s 
in  ;ill  --ase  the  fuinlion  (d'  i->sue.  the  I'pper  Canaila 
liank  had  Jour  in  \>'.\'i .  the  ('ominercial  threi.  the 
(lore  Moue.  (M  a^^cucic^.  chiefly  employe(l  for  pay- 
meut->.  c.)llceiious  aud  llie  purtdiase  of  e.\(dianut'.' 
thi\    had  one.'  eleven  and  noui'  respe<'t  i  \  ely . ' 

■,I(piirii:il.   I',  ('.   I"^:;;'.:i!.  Api'i'ii'lix,  p.  l»l'.i  <•/ .<»•«/. 
l''.\r»'|il  ilic  NiaL'Miii  Sus|ifii>ii'ii  r.ii(lj;('  I'lik,  wliiili  i^siicil  SdiUf 
iicilfs  |M\  ulijf  :il   l,iMk|i(irt,  N.  Y. 

•  Mmic  v|,,.,Mii,;ill  V  .ill  ;i'_'i'Ml'-  liiisiiH's>  wa.s  1..  'lixoimt  liillsnii  i.i.w  i-r 
( 'aiiii'la,  Nt'W  Yipik,  or  any  pai  I  nf  i  In-  pi  uviiii  c,  in  i  cfciv  t-  Mils  i.l 
iiKliviiliials   I'm'  ciilliM'tinii,  tn  icccivi'  cicpiisitf.  aii'i    In   Imwael  ainl 

ilclvi.Sf  nil    imU'-,  nlTlTCil     tn    llilll     fnr    .liscnllllt    liy     pl'ISnllS  ill     his    clis- 

trict,  tn  p:iy  iIh'  prncccilH  ulu'U  tliscoiiiitril,  In  ii'i'civt!  pasiiii'iils 
wlifii  line,  aipl  v'<'ii>'rally  lo  An  iiiiylliiiiL'  i«M|iiin'il  hy  tlii'  liank.  lie 
liail  liiiaiii'i's  nil  haml  aii'l  ilicw  ii|>nii  the  pi  iii('i|>al  liank.  It  was 
his  iliily  In  ii.st"  its  iintrs  ill  his  ciisliiiiMciiii'iils,  aiiil  (111  all  payiiiciils 
lie  iccfivnl  'iii('-i|iiarli'r  uf  niu'  ptT  criil.  I'mnmissinii.  'I'hc  nlliics 
liaii  Imaiils  appnintfil  rrmn  ihchical  sliarchnjilcis,  and  «'Xi'ii'is»'il 
I  lu'ir  iiw  II  iliscrclinii,  -.iilijcfi  nl  cniirsc  In  iiislriictinii,  iiniiscoiintiiii.' 
I '  p|K'i  <  aiKi'la  K  iiiv's  I'miicIi  iJcpnils, 'i  Win.  I  \'  In  ■_'  X'ic.,  p.    il  I . 

'it  is  prnlialilc  that  llir  iiuiiilicr  nf  a;.'cni'i('H  cstaliiislicij  hy  the 
Uank  lit'  t'ppcr  ( 'aiiinla  is  iiiisslatcil  ill  till-  ilnciiiiu'iit  citi'ii  in  iinlf 
I;  and  that  it  had  at  Inist  as  many  as  the  ( 'iiiniiit'irial  i'laiik.  .\ii 
ailvciiisfinriil  ill  till- K  iiiL'^tnn  /'iilri"/,  17th  .Inly.  |s;iJ,  inciitinntt 
I'niir  a).'i'nfios. 

■.ioiirnal,  I'.C.,  IS,i7-;;.s,  Appcinlix,  pp.  L':.'l,  L'L'.'i  ainl  -2!t. 


I'rnrtin'  nf  Un'   llnuks 


83 


A   IiIhtmI    »,Mvij,ni    c.rn.siH.n.i. ..,<•(.    |,;„l   Imti.  rst;,!,- 

Ilsl.-.l      ;,„,|     l„,„|s     ,|,.,H,si|...|      i„      |.,„Ml..n.      X,.SV      ^•nI•k 

<'>!>    .HI. I    .M..miv„Lj,u;,iMst    uhi.-h    ,1,,,    i,„„i,,   ,1,,.,,. 

•••xrl,an-...us„ullyu-itl,:,Mmt..n,,lpn.(it.'   TIm- l.i.lniHv 
"<  tra.l..  uiti,    Low,.,-  Can;.. la   an.l    tl...    V WxW.X   States 
wasa.lv..rs,.  i,,    hotl,    rasrs.^'      To  .......t    this   .liflicilt  v 

•"•''  '"•  •"•M>iiiv  fu.i.ls  it.  \..u-  Vui-k-    at    tl...    least  <-.,s| 

'•'■'■'"""     "•'     "'"      I'MI.ICS     .iis<-nMnt...l.      )n     sn„ x„.„, 

■)""•''"••"'  ''"'^  !'''>  ■•''•'"  i"  that  ritv.  A  haiaar,. 
"'<-iv  was  aluay>  ,l,.sira  hj.,  f,,,  st..|-li..u.  ..x.-ha.,-.. 
'■""''•  ^'"""I'n.rs  h,.  hnajrht    at    ihn...  t..  f,,„r  prr  r..,?t 

'""'"'■  ""■'■"""'"'•«t'-.'       The     hai.ksalsn    .lisrnunl.Ml 

iMi-v  ai.iuui.ts  of  iu.-.rhants-  ai.<l  shippers-  hills  .Iran,, 
^•yamst  .•oi.siu-,„„,,„sof  wl,.,,l.lloni-.  pm-k  a.i.i  ot  he,- 
'"•'"'"'■••-      '''•'<'    ".eaas    (u,-    ext.n.lii.,:;-  to   lu„.h..n,M.M 

'""'    I"-'"''"'-      '"l.vers      the      liv..     ,.,.     .i,     ,nu,„hs-.Te,|,t 

'"■'■'I'''  'lm'i.,,-tl,e  winie,.  an.l  early  sprinu.  an.l  uait- 

'"-  '"'■  '•'■•'■•".vMi.'nl  ,.nt  ..f  th..   pr.M- Is  ..f  ,  h,.  sal.'s  in 

<'"vi.-..  markets,  uer..  n.neli  .|..sire.|.  hut  the  haiikin-.- 
'■"!"l.il  ^\"'^'i"iteina.|e.pial.-t..s.n-li  snpp.nt.'  It  was" 
I"''-I'''l'>.  Miiit.'as  Nv,.||  tliat..v..n  l.'a.ii.i- t  ra.|..s  shonhj 
supply  tlK'ir  own  <'apital. 

'"'"'  ""'•"■  '•'''■<'iilati..n  hore  a  mn.-li  lii-h..r  rati.,  to 
';'''""'  -'"nil;;-  Ih..  first  .|,..-a,le  ..f  ||,..  I'.ank  of  |-pp,.r 
< '.111;.. la  x'xperience  than  .ver  al't.'rwar.ls.  Th.^pi-o. 
I'""""'"  ''"II  l'r"iiiv:)()  per  cent,  in  !>•.'*;  to  I  S?  per  e."...! . 
'"  ''^■"-  •^'''••'"  »''•'  <'"Mip..iition  .,r  the  n.w..r  hanks 
'"•'■•"•"■  '■''''•'•"■^•■-  it  '••■11  Mill  in,..-..,  an.l  in  I .-:!  Ito  L-iiC, 
sH.lo.n    ros..  n.ore  than  -Jm  p.'r  eeiit .  a  ho\  .■  th.-  pai.l-ii. 

■'""•■":il,  r.C.  iv;;;  .;i,  .\  ,,,„.„. li.x.  |,.  i.;-,^  .„,/ 
•'""••Mul  h....Msla,iv,.Cnnn,il,  t  ,  C..  iv,;,  A,,,,.-n,lix    \,p    li 
•'""••"=''.  I'-*'..  IS:;7,  .\|,,„.ii,iix,  '//.v-//,n,,p.  i.s. 
' /''»/,  |i.  :;7. 


8-J  Thr  Ciiniiliiiii  l!<nilaii;i  Si/s/nn,  1817-1890 

ciipital.  Tlic  l(»t;il  circiiljitioii  of  tlic  cliurlcrcd  hanks 
WHS  on   the 

'St  .liimiary,  l^:'.l AlL'dT.L'uit 

is;;.". .".;;:!, 7i'> 

lN:i(i :{;!:i,l7s 

l,s;!7 Jii-l.s-j:; 

( >n  tlif  lattfi'  (late  (lie  four  private  hanks  liad  L'Sr).- 
4r»l  ontstamlin;;-.  niakinj^  llic  total  circuhit ion  of  the 
provinfo  L*4'.»()."J7-I.  'I'his  cxcinth's  the  notes  of  Lower 
Canada  hanks,  whieh  had  some  curreney  in  sjiite  of 
the  law  a;;ainst  them.  (-1  (leo.  IN'.eap.  \'A.)  It  in- 
cludes, on  the  othei'  hand,  tlu'  i-onsiderai»le  ciicula- 
tion  of  small  r.otes  in  the  I'nited  States,  especiallv 
in  the  western  counties  of  New  York  and  thttse  lior- 
derin;^' on  t  he  I'iver  St.  Lawrence.'  '{'he  hanks  were 
afterwaids  to  tind  their  American  -ircnlation  a  source 
more  of  irouiile  than  of  i»rotit.  Already  some  of  the 
haidcers  in  the  Western  states  found  it  cheajier.  hy 
usiii}^  the  private  hanks  as  i)rokers.  to  j^et  ;^-old  on 
the  ntttes  of  ('ana<lian  i'hartei»'d  hanks  than  to  hrin;^ 
specie  from  the  seahoard.-  Kor  jairposes  of  redemp- 
tion and  shij  nient.  recourse  was  had  to  tlu  sjiei'lc 
mai'kets  (d"  Montreal  ami  Xew   ^'ork.     'I'he  silver  cir- 


'  Ivi'imrt  1)1  llif  Ni'w   \()ik  liaiik  (  nmtiussniiicis,  \^>k 

-Juiiiiiiil.  I'.  ('..  |s.i:!-:!t,  ulmijini. 

'.Fouiual,  U.  ('.,  IH:'.7,  IJeport  of  tlu'  Selci't Coinmittet'  U>  wliich  wuh 
ri'fi'iTiMl  tlie  siiliji'ct  111' tlii>  Miineliiry  Sysli'in  of  the  I'nivincc,  .\|)- 
pt'iidix,  i>.  :il,  Kviilt'Mci' uf  Hcnj.  Tliorm'. 

'Jdiiriial,  <  aiiiula,  ISII ,  Apiicixiix  ().  Tlu-  I'.aiik  of  I'ppiT  ( 'iinii<ia 
iiniiortud    ll(i."i,(ni(i   of  tlu-   siiiii    incntioin^'d.      Nini'-ti'iitli>   of  tluH 


I'rdilirr  tif'  llir   l!,iiil,'.< 


So 


Til.,  direct. .l-iil,.s  ..iljuyr. I    iK.sil.li     h,|w,.    |  ,n.|.,.rl  i,,M 

of  th..  .lis.-oiints  as  thos.-  \i\  !,...  l.nw.T  I'n.vin..-.  In 
IS:{4  III.'  acc..imn<.fliiti..ii  .xlcn.i.Ml  t..  lli..  .lir.'.'tois 
lia.l  ii.v.M- .■\c....,|.m1  ()ii.--.sJM!i  of  th.-  I..lal  .li>.-..iiiits. 
''''"•  <lii-.'ct..is  .,f  tlh-  I!a;.k  ..f  r|,|M.r  Cai.a.la  had 
ii«-v.T  ha. I  111., IV  than  th.-  l\v.-iili,.tli  part .  rit  h.T  as 
promissor's  or  ind.Ms.'rs. 

Ill  Ih.'ir  K.Mi.-ra!  lMisiii..>s  uf  |..aiiiii;;-.  th.^  hanks 
douhtl.^ss  siippji.'.]  a  iriarlc.-t  wi.l.-r.  in  s..nic  n'spocts. 
thiUi  th.'v  d.)  I.,  dav.  Other  forms  <d'  . -relit  institii- 
tioiis  won-  M.>t  \i'\  <I<.v(do|M-d.  S...  ill  iNli.-i,  the  cashier 
of  the  Hank  ..f  Ipi'.'i-Cana.Ia  sai.l:     •In  my  ..|.ini..n. 

every  farm. -r  ..r  |i.'rs..n   in   trad •  in   r.-pntal.Ic  cir- 

ciinistanc.'s.  who  can  <;iv.-  nn.-xc..|iti.inahi..  j.ers.tnal 
security,  has  a  rij,^ht  t..  s.'cinv  from  the  puhlic  hanks 
reas.diaidc  .icc.inmodat ion  in  proporti.m  t.t  his  means, 
with.)Ut  h.'in<;'  c.>nsid..re.|  to  ask  tor  favors.""'  The 
period  was  one  in  which  politicians,  lawy.'i-s.  lami 
owners  and  ad\  .■ntnr.-rs  w.-r.-  ai)le  to  s.^cnre  -■ener.»ns 
grants  fn.m  th..  loanahl.-  fun. Is  .d'  th.'  hanks.  The 
hanks  did  n..t.  as  now.  .d.s.-rv.-  th.'  piin.-iple  that  cre.lit 
should  he  l)ase.|  eith.'r  ..11  an  e.\.dian<;v  .d"  c..miii.Mli- 
ties  or  an  iiicivas.-  .)f  c..iiiiiiodit i.'s.  The  e|V..rt  to 
adapt  tin-  S.-..|ch  .-ash  .'ivdiis  to  Canadian  c..n.lit  i..ns 

has    he..|i    ni.-nti..n.M|.      \ r\    \\ >seiitial    chara.-t.T- 

istics  .>f  S.M.t.  h  haiikin-;-  w.'re  not  -.-.en. ■rally  a|»pre- 
eiated  in  the  I'pper  l'r..viiice.  imr  its  tra.litioiis  fol- 
lowed. 'I'll.'  hanks  wer.-  not.  as  now.  prcdoininant I v 
eoimiiercial  an. I  industrial  hank>.  IikLmmI.  wh.n  tli.' 
Hank  .d'  .Montreal  i.ropi.sed  in  l>:!'.i  to  exien.l  its 
op.Tatioiis  to  the  rpper    l»rM\inre.  the   |,|aii  was  w.d- 


tlu-y  fstinr.it.'.l  \va.-  i-Mi,..|  t.,  il,,.  i,ii\..ii,.  I,;,i,lis  tin-  jivmI.t  |.;.it  (,f 
wtiicli  wa.s  .sold  at  :i  .siuiill  ailvaiirt'  in  tlu-  Init...!  -lat.'s,  Imiiiuil, 
V .  ( '.,  Is.'ir.  .Aiipcipiix.  p.  :'i7. 

'.'<'iiniai,  f.C.  is:;,-,,  .Appendix  iii.  livid. ■ii.f  .,|-||,,,ih;iH . ;.  llidout. 


ri 


8''  Thr  ('(iiitiiliuii  Itiiiikiihi  Siish  1,1,  1817-1800 


>  * 


I 

St' 

-a. 


'j.>, 
k* 


(•oint'd  liy  iiil'iiiiiifU  uli.s,i\cr^  ;is  inuinisiim-  -•■iitiiil 
iM'iicMts.  ••  for  ill  ii  short  tiiiir  it  wouM  instind  ..ur 
•  lii.'clors  in  the  syst.'in  n|  ((.iMniricial  l)jiiikiiio.  w  |,irli 
very  IVw  df   tliciii  iiiKliTstood.""! 

Were    iiiiiiiy    I •«■    rlijirj,^-.    hiiil    ;i-;iiiist     tliciii    it 

^^■"""•'1    '"■    •fssary   still    i..    ackiiu\\|,..|o..    t|,;,,    ,|,,, 

i)illlks  Wrl-r  (,r  ^ViiW.  ,,f  IliralcillaMr  service  tn  III,' 
<■"'"">■       I"    ;i    >"»llll.-.   IJlilllv    srttl.'il.  srar.'cly  r\|,|oil.(| 

iMit  advaiiriiij;-  c try.  ilinv   .mi-Ih    ii,,|.  |H.rlia|».  i.i 

III'  ciirurccd  ilic  iiiaxiiiiN  and  liiniis  uf  iiankiny  ajipli- 
<-{iltlr  to  a  \vr;,ltliiir  coiiininnits  with  a  ciiMlii  or-ani- 
/iition  dc\c|o|ird  on  inaiiy  sides.  I'ljscwli.  rr.  .(•r- 
taiiily.  till'  ri;,nd  rules  liav.  not  1,,.,'n  I'liforced.  tliroii-li 
jx'riods  <.r  wliicli  every  reader  can  provide  .\aiii|iles. 
The  contrast  with  cnl  eni|.orary  Anierican  hanks  and 
American  practice,  even  in  the  state  of  X.w  'i  ork. 
is.  in  respect  at  least  to  stahility  ami  ihe  jiiihlic  secu- 
rity, entirely  in  lavor  of  the  I'pper  Canadian  insti- 
tutions. l-"or  o\.'r  fort.x  years  not  a  siiie|,.  hank 
cliartered  hy  I'pper  Canada  tailed.  Dnrin^-  that  time 
th<'y  earned  <;iiod  <lividends  lor  tln-ir  sharehohh-rs. 
tiiid.  hy  iiicreasin-'  th.ir  <-apital   and   cstahlislimeiits, 

kept    pace    uitll    the    ^rowili^'    needs  <.C    tin-    province. 

The  jieriod  marked  hy  wreck  and  ruin  in  the  states 
on  the  south,  they  survived  with  mimhers  intact  and 
solvency  unimpaired. 

■Joiinial.  f.  C,  is:;;.,  .\p|.,..Hlix,  vol.  H,  ,,;„•(  ii.  TliinI  lU-p.-.f  of 
the  Sek'ct  Cumnittei.  on  Mankinjr,  p.  771,  KvLI.-nr,.  of  FraiiciH 
Fliricks. 


I 


Siisi„'nsii,,i  iif  S/irrir   l'<i,p,tents  mii/  Cn'si.s  nf  IS.'IT     SI' 

5:'M.-    TKK  SlSI'KXSKiN    (»K  SI'KclK    I'AVMFATS  ASM  TMK 
(KKIS  nl'    |S:{7 

riif  suspension  .)(■  s|H'(ii'  |iiivniiiits  hy  flic  Ain.ii- 
(•■•m  l.iiiiks  on  flic  I  Ml,  an<l  IVth  May.  |s:i7.  .md  tlic 
follnwiMM-  ,|;,y^  nrcrssaiily  alV.',|,..|  tli.>  l.anUs  in 
l.'>\v..|-  Canada.  'V\u-  nior.'  acli\.'  iiml  j.rcssin-'  <lr- 
mnn.I  f-.r  s|)cci.'  in  t  lie  niai'kfts  of  tlir  I'nitcil  Slates 
iiiiine.iiat.'ly  eaus.'.l  a  heavy  <lrain  of  specie  upon 
tiK'ir  \anlls.  Sferlin;;-  exclianuv  had  risen  to  a  li,L;iir(' 
where  an.\  thin-  l.nt  the  export  of  specie  woiil,!    have 

' "  niinonsio  the  remitter.     The   reserves  conhl  not 

he  an;4incnted  l>y  imports  in  I  inie  to  meet  the  extra- 
ordinary proportion  of  demaml  chiinis  that  were  pre- 
sented for  payment.  It  was  necessary  t..  do  sonie- 
tliiii^-  to  save  what  -old  tlu^y  still  had.  and  to  prevent 
file  contraction  (d"  circulation  ami  discounts  whi(di. 
fhoiieh  osenfial  to  the  maintenance  of  specie  pav- 
inents.  Would  have  heen  disastrous  in  the  involved 
condition  of  the  comm.-rcial  connnuuify.  The  L<.wei- 
Canada  hanks  suspended  on  the  isth  May.  In:{7.' 

'''or  I'pper  Canada  this  seemed  like  an  added  I. low. 
Its  peoph  had  not  yet  awakened  to  the  situation. 
'I'hey  Were  still  scheming  to  secure  more  hanking 
capital.  They  Generally  nusinfer|)ii'fed  the  causes  of 
tile  movement  (.f  the  precious  nu'tals  toward  the 
I  iiited  States  and  Lmidon.  The  convcvtihiiity  of 
I  |>p<'i'  Ciinaila  hank  paper,  said  an  efljcial  report. 
was  vested  <.n  the  p.od  taith  of  the  K-overnnients  of 
the  Inited  States.  Lower  Canada  and  Tppei' Canada 
in  preserving- tlic  e.pnil  value  of  their  common  cur- 
rency.-'    This   was  their  eiiphemism  for  the  fact  that 

'.Iniirnal,  Can..  is.V...  H,.,,o,t  and  Pn.n.e.iiM^^s  of  ih,.  CuiMtnitt.".. 
'I'l  Hiuikin^'aiicl  Ciirifiuv,  A'.pcn.lix  rm.  fl7. 

■.Itiiinial,  f.  ('.,  ls:!7,  lM  scHsidii,  Appcinlix,  lU-p-rt  of  tlie  Select 
<'<)ininitti»e  im  tho  Moru'tarv  SvsH'iii. 


•i; 


^^  7'/i''  (',i),ii'/ia,i   l!iiiil,i,ni  Siislrin,   ISli-lf^OO 

New  Nuik  .lllil  Monliv.il  \vrl(.  Ilir  specie  llliirts  C. r 
rplMT  (•.iiiiul.i.  ;in.l  Ihiit  the  |.|iee  wiis  then  liiM-her 
tllJIll  tlie  pinvillciills  (Nle.l  tu  pjiy.  Th.'V  liiile.l  i||s<. 
t«'  f'.-lli/.e  the  necessity  U^v  ;i  ;,^eiiei;il  cuiit  l;ict  ioll, 
<»ll«-<'  lllc  crisis  h.'xl  c..||ie.  The  ha.ler  uf  th.'  K'elnllM- 
ci>.    iluwevel'.     Win.     Lynn    .M.Mlcn/ie.    \v;is    ;;uilty    (.f 

iiistioatino-  ;,  ,,,,1  ..n  th.'  lijuik  ..f  V \^\H^\■  Cunii.hi. 
Hill  the  hiink  |)i)i(l  the  notes  in  silveriin.l  kept  fiiends 
'^^  ''"'  ••"'iinter  wlin.  ;it  niy:lit.  tiiindled  the  sp.'cic 
hack  in  a   \viieelhan-(  w.' 

\^y  tile  i:)th  June  tile  elVect  ef  the  sp.vi.'  drain  had 
I)ccn  .•(.nsi(h-rahh'.  as  the  statement  .d'  circulation  and 

specie    will    siidW.'-' 

Cir.'i.la»i..ii  (Imrl.T.Ml         I'rivMl.. 

Illlllkr*  lillllks  lotiil 

Isl  .lamiary     is;;? cm^H'lW        C8:.,  CI       U!Mi,J7| 

L'"  V">''  '.^••;. l-':!,i"i         s:,,r..:,       ,-,(,s,s!i.i 

'"^''  •'""•'•  1^- :n!'.-MI         7I,l4.s       ;;!Mi.;ii»2 

DilTeiviU'e  i.ctwiuMi  May  and  June,    L'I(M,1.')7        fl  l,:!i:      CMS,. -,04 

Spciii' 

i:.tl.  May,   is:;:   i;|n7,;;;:i        u:;,-i:m      U:;o.7S-» 

'•'"'    -'"nt'.    "^'i TS.SSl  l.J.|,-,7  ,,;;;;;4, 

DilTt'n'nce  lictwfcn  May  and  .IiiiH',      t;2S,4r)(i  Cl,(ini>        t^'?  44.S 

But  tlie  15ank  ..f  I'pper  Canada  liad  imported  specie; 
for  l-|().(»(MI  hetwe.-n  til.'  t  \^•o  .hites.  'I"he  total  loss  <.f 
specie,  iln'i-elore.  was  i'l;;.  lis  instead  (d'  fi?.  I  IS.  and 
y<'l  on  tlie  'jOth  .liinc  the  i)anks  were  still  maintain- 
in;;-  payments,  and  their  notes  were  at  par  with  specie. 
To  do  this,  they  had  heen  .d)linvd  to  call  in  their  dis- 
counts and  siifVer  a  contraction  of  ■.>,')  per  cent,  in  the 

'Charlfs  Lin.l.sfv,  '-riic  l.ilVaihl  TiirM.s  (,(    \V)|i.    |.yii||   .Mdnkun. 
zio,"  'I'orfniti.,   isiii.'.  |,,  :;i.  f  .    ■'     r   .  t  .  ir 

IVf/f  iiote  -,  p.  s;;. 


Sii.yinisidH  of  Sjierii'  J'ni/inrn/s  mid  <'risis  of'  is;;;     89 

ii«»f.-  circiilatinii.  Sc  far  as  tlir  ^rantiiio-  nf  cycilit 
was  cuiirciiiril.  l»;iiikiiiL;  u|M'ratioiis  lia<l  practically 
ceased. 

'I'lic     withilraual     nf     the     credit     accommndat  ion 
usually    extended    in    iner<liants     was    not    the    sole 
cause,  ur  the  deepest,  of'  t  he  coninicrcial  endtarrass- 
""■>"       'I'lic    wet    harvest    of    Is:;;,   ;,,id   the    rednced 
valii.' (d  wheat  in  that  year   had    lessened    nialeriallv 
the  Wealth  in  the  hands  of  the  farndn^^  coniinnnity. 
They  ('(Mnprisi'd  at  least  I  wo-tliirds  cd"  the  popniafion. 
'I'hey  had  sntfered  fioni  the  short  crops  (d"    ls:{C..  and 
had  tixed  rather  rash  proportions  (d'  their  caintal    in 
'"'"'     :»ii(l     improvements.      Other    dehiurs,     havin;? 
invested  snms  ohtained  from  hank  disconnts  in   lon<; 
specidations.  now  fonnd  it  impossible  to   retire  their 
paper. I      The    shipments    .d'    wheat,    flour,    pork  and 
other  |)rodnce  to  Lowei- ( 'anada  were  less  in  the  spring 
of  l.^:{7  than  in  former  years.     The  practic<>  heinLC  t<» 
draw  aj^ainst  smdi  shii»ments  to  pay  fcn-the  purchas(>s 
«d'  the  preceding-  y<'ar.  the  nu'rcliants  had  less  wliere- 
witli  to  meet  acci-ued  (daims  against  them.     The  l)al- 
ance  (d'   trade  was   thus   still    more    heavily  against 
rpper  Canada,  and   in    favor  of  the  I. ewer   l'ro\ince 
and    the    Tnited     States.       'J'hc    c(.nse(pn'nces   were 
im-reased   tejideiny  to  e.xport    sjiecit'  and   intensified 
dcniMiid  for  discount  acconnnodation  from  the  hanks.' 

The  iK.use  of  Thos.  Wilson  tV   Co..  I Ion.  hankers, 

and  finam-ial  ay-ents  for  the  provim-e.  stopjied  p;iy- 
ni(>nt  the  -id  ,Inne.  Itills  .d'  exidianoe  drawn  upon 
tlicm  went  to  protest,  and  ahoiit  iSli.diKi  stw-..  ihe 
balance  (d'  provincial  moneys  still  in  their  hands. 
ap|teiire(|  Id  he  in  jeopardy. ' 

'.loHinid,  r,  r  ,  |s:i7-il'',  Appi'iKJix.  |i,  L'l:'- 
.loiinial,  I',  I'.,  m;I7,  .\|»|i('M.lix,  ',/ fiimi. 

'.h.uniHl.    I'.C,    Is;i7-:!.s,   Aj.H-n.lix.   |.,   1^.     iUit  Ihv  mih  WM 
ftl'tcrwanis  ipc<i\ ctfil  with  iiitcicht. 


*4 


I 


no 


Thv  Ciinnilidii   r.indimi  Sifslpni,  1817    189l> 


I;' 
ft' 
f, 

5<.. 


Till'  lt';;is|i(i  iiif  (if  rpiMT  Ciiiiiiilii  nut  ill  f\t  iin»iili- 
iiiir.v  sfssidii  tilt'  l;it li  .liiiH'.  Its  liiisiiicss  Wiis  with 
till'  liiiiMK'iiii  mikI  ciiiiiiiiri-ciiil  ililtinill  ii'v  ihiit  ijls- 
trcsscil    ilic  |iin\  iiicr       Till-  Ijiiitciijiiit  ( Jii\  I'liuM.  Sir 

l<'l'llll(-is    liuixl   lifinl.  i)|M  llcij  tl.r  srssiiijl  ll\    .III  i'liii|lll'llt 

spt'crli.  ill  wliicli.  ijiiiti'  iiiit iirally.  In- ili-' ll>^«•^■ll  llir 
ilriiin  lit"  s|ii('ic  siilVfird  liy  tin-  li;iiik>«.  iiml  tliiir.  iis 
.\  rt .  iiiiili»iil»ti'«l  si)l\riicy.  Sir  l-'riiiicis  hiiiisclf  ..|niit>t'(| 
ii  siisiM'MsiiiM  of  spi'iic  |i;iymi'iits  wliili'  tlir  rnllir^  i>^ 
f  III'  liiiiiks  wci'i'  ^till  full  III'  I'liiii;  tir-.l.  ;i->  iiii|iiilil  ii'. 
iiiipi 'rill  in;;:  I  III'  CI  I  nil  ill 'II  CI'  lit'  I  III'  I'.iit  isli  piilijir.  wlinsc 
vvi'iilt  li  t  III'  CI  (I  nil  y  III 'I  ill 'I  I ;  ;i  ml  m-ci  null  \  .  as  lli>lllt||ll|•- 
!lltl  '.  iii\  olviii^'  lire;, I'll  uf  faith  with  tin-  pi  hlic  ciiili- 
tiirs.  Me  put  the  alternatives  s«|iiare!\.  frainl  nr 
hoiiiir.  --uspensiun  with  full  or  with  eniit\  specie 
chests,  ami  then  iir;;e(l  the  li';^islat  lire.  ••  like  llrituiis. 
to  he  true  and  Just  in  all  their  ilealin>;s."  lie  >pok»' 
in  \ain.  The  .Asseinhly  pas-icd  a  hill  ant  hoii/iii;;'  t  In- 
hanks  forthwith  to  suspend  specie  payments.  .\s 
imicndi'd  in  important  details  hy  the  Le;;is!ative 
(*oiii)cil.  passed  on  the  loth  and  a|)proved  on  the  \  1th 
.Inly,  the  measure  applied  only  to  the  chartered  hanks 
and  the  four  excejtted  private  hanks.  I'mvided  the 
authority  to  suspend  was  first  ohtained  from  the 
( Jovernor-in-('ouncil.  the  hanks  were  relieved  from 
the  le^^al  incai>acity  to  carry  on  hunkiiiv;'  operations 
when  not  redeeming;  notes  in  specie.  The  Lieuteiuint- 
( Jovernor  mi;^ht  impose  conditions  supplenientary  to 
the  act  and  call  for  returns.  Actions  hnni^ht  against 
hanks,  unless  to  li(|iiidate  claims  or  otherwise  to  fur- 
ther justice,  were  suspended  during;-  the  term  of  the 
suspension  of  payments.  Courts  hefore  vvhich  actions 
should  he  hrou;j;ht  mi;;ht  stay  jM'oceedinys  on  the 
iipplication    of  the    defendants    and    heariii;;'  of    tlie 


Sun/iriisitiii  of  Sjif*ii'  I'nijim  nt.s  (in)l  Crisis  , It   ISilT      ;tl 


|tftiti<'s.  Sus|M'iisioii  was  to  III- o|if imijil.  iiut  luinpul 
sitr-.  ii|i(iii  till  liiiiik^.  Tlif  rxiiiix  tA  ihr  l;i\v  was 
tixt  i|  lur  tilt'  fii.l  ui  ihc  tlit'ii  iit'Xt  -.s-imi  ..|  I'aclia- 
•  nciil  iMiiiiiy  this  iM'iind  Mil  siis|u'ii<li<l  l»aiik  was  to 
issiif  imlrs  ill  I'M-rss  (it'  paiil  in  i  a|iital  -i«h  U.  ur  tu 
<lis|insi' III  it>  -.iMiif  oilniwisc  than  in  iiayiiii;  liai- 
tiniial  |»arl-«  i>l  a  di'llar.  m  in  ri'ilrciiiiiiM  i|.i||,ii-  ni'ii's. 
(7   ami  S   Win.   I  \'.  ia|i.   -J.  i 

It  was  saiil  .it  till'  linii'  ilii^  nirasmi  \\;is  liciim 
(Iflialiil ;  ■• 'I'lif  iiiiniiicirial  iiilii  -^ts  nt  tlir  iniiiiliv 
|-t'i|iiirr  iniini'iliati-  ai'i'<iininiiilat  imi  nl  tlf  iiaiik-~.  ami 
that  I'aiinnl  Ih'  atl'ui'ili-il  withmit  ^ns|M'n>ii>ii  m  li\ 
Kiviuy  I  III'  <  uinniiinil  \  a  siilivi  it  nir  tni-  s|Mrif. '"'  jn 
otliiT  uccils.  it  \\;is  Irari'il  to  |ii't'ci|iitalt'  llif  imrran- 
till'  li;i 'ikiiiplrv.  which  rcl'ii-iil  I'T  tin-  iisiii|  sii|i|mi|| 
<'f     ha.ik    I'ljiiis    wa--    likil\     in    i  aiisr.       To    niaintaiii 

ft  (|i'Ml|.t  loll   till'    hanks    Wniilil    I lili;;('i|    tu    I'Klit  lail 

hntli    ilis.iiiiiits   ami    I'iiciilat  inn.      'I'.i    maintain    |>av- 

nii'llt    also   iliVolviil  fof   ihi'lli    till'   losses  illlr  |.i  thi'ro.«,t 

of  ;;('ttinK' s|M'>'ic.  And  aiihd  li\  a  ri'itain  lon;;im-'>s 
ol  proviin'ial  i.has  11)1011  n  iitlary  <|m'st  nnis,  ihc 
I'onihinat  ion  of  hank  and  hoi  r-owin;;;  intiiist^  lar;  nd 
tilt'  hill  throiiL^h.  'I'Ik'  --«'i|iii'l  shows  how  Irw  of  thf 
atiticipalrd  rcsiilts  Wfio  ^aimd. 

Thf  ('oniimrcial  i'.ank  of  tin-  Midland  histiici  was 
the  only  ('harlcn-d  hank  soon  to  avail  itsilf  of  tho 
act.  Its  sns|M'nsion  was  aiithoi-i/*>d  the  •J'.iih  Si'|ttini- 
hci'.  IM{7.  Tin'  Litiitinaiit  ( Jovcnioi'  iinposi'd,  with 
his  pfi'fnission,  thi-  comlitioii  that  iiotis  of  ;i  *iis 
pfinlcd  hank  should  not  iir  ustd  in  ;4o\  ciniiii'iit  ti.ins- 
iictioiis.  My  this  nirans  thr  lai';;i'  inilitaiy  oiitlax. 
soon  to  occw.  was   perx  ciitid    fioin    hcin;;  an    iiistni 


^1 


'.loiinial.  I'.  ('.,  Is:;:,  .\|.pi'ii.|ix,  |>   l'l,  l-A  i.U'in  »■  ..|  .Mr.  I'minlfci.t. 
Upper  Caiiaiia  dnzitlf,  vul.  xii.  n<i.  -I. 


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The  VfUKulinn  Biinkiiiij  Si/s/em,  1817-1890 


I 


nient  for  tlie  inflation  of  an  inconvertible  currency. 
The  Aj;i'icultnral  Bank  ])'7ictically  suspended,  and  in 
Novemliei-.  1  s:57.  failed  utterly.  Its i)artners  decamped. 
(Ireen  was  ari-ested  in  Buffalo.  Truscott  sailed  for 
Europe  "to  negotiate  the  American  securities  of  the 
bank.""  'I'he  pi-ecious  pair  left  behind  them  about 
.t'20, ()(»()  of  notes  utterly  unprovided  foi\  and  claims 
of  depositors  for  over  t' IS. 000.  against  which  but 
.i'7,000  !)f  commercial  paper  could  be  found.'  The 
Farmers'  Bank  suspended  for  only  two  months  at  the 
close  of  18:}7;  the  Bank  of  the  People  not  at  all  in 
that  year. 

The  Bank  of  Upper  Canada  much  desired  to  sus- 
pend, and  the  cashier.  Tliomas  G.  Ridout,  rather 
pressed  tlieir  wislies  upon  the  Lieutenant-Governor. 
Wearied  and  impatient.  Sir  Francis  summarily  closed 
the  discussion  by  exclaiming.  '*  Sir,  the  principle  of 
monarchy  is  lionourl  Tlie  Bank  of  Upper  Canada  is 
the  Government  Bank.  To  maintain  its  honour  the 
l)ank  must  redeem  in  specie  I  ""  And  until  the  oth 
March.  IS'SS.  it  continued  so  to  redeem,  in  spite  of 
the  reduction  of  circulation  from  t'212,000  in  May  to 
t'80,000  in  December.2  The  Gore  Bank  stood  with 
the  government  institution. 

The  situation  in  Lower  Canada  was  complicated 
by  the  appearance  of  armed  insurrection  on  the  17th 
Xov»'mber.  The  trouble  was  not  wholly  unexpected. 
Before  the  close  of  navigation  the  banks  at  Montreal 
had  transferred  their  specie  to  Quebec,  and,  like  the 
Quebec  Bank,  deposited  it  for  safe  keeping  in  the 
citadel.     Activities  not  connected  with  the  hostilities 

'.lournal,  U.  C,  18;!7-;ls,  Apj.eiidix,  p.  2\2  et  i>ei/. 

-For  the  tignres  the  reader  is  refened  to  Jourual,  U.  C,  1S:5<,>, 
Ai)pendix,  vol.  II,  part  ii,  p.  (iHT  et  seq.  For  the  iiifident  rehited 
the  autliori;y  is  iiiKiMestionable,  but  I  am  not  at  liberty  to  cite  it. 


Siispeiifiion  of  Specie  J'di/nients  (Uid  Crisis  «/"  18:iT     9:5 


hi 


were  jnetty  much  suspended  while  the  hitter  endured. 
But  the  last  party  of  i-ebeis  surrendered  tlie  l")tli 
December,  and  on  the 'iOth  February,  J8:?S,  though 
the  military  were  still  on  the  alert,  a  ])ublic  thanks- 
giving for  the  restoiation  of  order  was  hold.'  The 
large  expenditures  of  si)ecie  made  by  the  British 
commissariat  were  of  material  assistance  at  this  crisis, 
and  made  the  resumption  of  specie  jjayments  on  the 
l23d  June,  ISJJy,  comparatively  easy  foi-  the  Lower 
Canada  banks. - 

On  the  -ith  December.  JS'J?,  the  fii'st  movements  of  a 
similar  rebellion,  i)artly  sympathetic  and  partly  inde- 
pendent, occurred  lU'ar  Toronto  (formerly  York),  the 
capital  of  the  Upper  Province.  In  this  case,  however, 
the  insurgents  were  chioHy  Reformers  of  Anglo-Saxon 
blood,  instead  of  disaffected  French.  Within  ten 
days  the  main  force  of  rebels  at  Toronto,  and  tlie 
other  party  near  London,  had  submitted  to  the  gov- 
ernment or  fled  the  country.  Peace  was  again  broken 
by  the  so-called  American  invasion,  beginning  the 
LJtli,  the  capture  of  Navy  island  in  the  Xiagaia  river, 
and  the  bombardment  of  Chippewa,  a  town  on  the 
Canadian  shore.  Then  the  steamer  ••Caroline"  was 
destroyed  by  the  Canadian  militia,  <in<l  the  invaders 
defied  the  authorities  on  eithei-  side  of  the  line.^  To 
quell  the  present  and  pi'event  futui'e  disturbance  it 
was  now  necessary  to  (puirter  a  considerable  force  of 
troops  in  the  Upper  Province.  The  Commissary-Gen- 
eral was  unable,  however,  to  meet  the  large  outlay 
or   money   which   this   i-eijuired.      Hy   Decembei-.  the 

'Robert  Cliristk',  "History  of  Lower  Caniula."  vol.  iv.  i».  44S  et  acq, 
'Journal,  Can.,  1S.5!(,   Appendix   no.  (17,  p.    17,   Evidence  of   tlie 
Bank  of  Montreal. 

•'Journal,  U.  (J..  l!S;i7-;JS,  p.  :!■"),  Despatcli  of  F.  W.  Head,  Lieutenant- 
Governor,  to  H.  S.  Fox,  British  Minister  at  Wasliington. 


94 


The  Caniidian  lUinkinrj  ISjiKlem,  1817-1890 


11 


Bank  of  Up{ter  Ciuiiula  liad  accunmlatvd  L'Ho.OOO  in 
specif.  It  advanced  t'oO.OllO  to  the  ocvermn-nt  in 
dollai's.  and  offered  to  furnisli  tlie  money  for  military 
disl)ursements  in  all  jtai-ts  of  the  province  where  posts 
wi-re  estiiljlished.  In  the  first  quarter  of  KS:{S,  it  did 
advance  some  a>]!).()();j  on  treasury  bills  on  London. 
Tile  hank's  circulation  rose  to  t'l,")4.()00,  its  specie  fell 
to  l'()(),()(»0.  The  suspended  banks  took  advautaKe  of 
the  lary-e  issues,  collected  the  notes  for  redemption, 
aiul  refused  their  own  in  exchange.  The  disturbed 
state  of  the  American  frontier  nuide  the  import  of 
si>eci(>  from  New  York  impracticable.     To  su])ply  the 

whole  counti-y  with  specie  was  snmethin^that  theCom- 
missary-Uenei-al  and  bank  combined  could  scarcely 
undertake.  On  the.")th  :\[arch.  IS:iS.  the  Bank  of  lTi.i)er 
Canada  a]tplied  foi-  authority  to  suspend.  The  per- 
mission was  <4-ranted  immediately.'  'i'he  suspension 
of  Ihe  (iore  IJank  was  authorized  ou  (he  l(»th  of 
i\Ia?'ch. 

On  the  (;th  March,  also,  was  ajtproved  an  act  i  I 
Vic,  i'ai».  2'2.  r.  C.)  extending-  the  linn"t  of  note  issues 
during-  the  suspension  to  twice  the  paid-in  capital  of 
th(!  suspended  banks.  The  clause  which  forbade  the 
banks  to  (lis]»ose  of  their  specie  was  rei)ealed. 

Owing  to  the  opposition  of  the  Bank  of  Upjjer 
Canada,  none  of  tlie  banks  in  that  province  joined  in 
the  H'^'neral  I'esumption  by  the  banks  of  the  United 
States  and  Lower  Canada  in  June,  l.s:]8.-  The 
Lower  Caiuida  chartered  banks  did  not  long-  continue 

'.Toiiriiiil.  U.  C,  l.s:i!),  AppoM.iix,  vol.  II,  part  ii,  p.  (107  et  acq., 
CorresponiU'iice  on  tliesiilyjectof  t ho  .suspension  of  Si  ecie  payments; 
also  Upi)er  Canada  Gazette,  vol.  xii,  no.  ■\r^. 

'Ibid,  Letter  of  the  l!ank  of  Montreal.  I'ide  Ordinances  of  the 
Special  Council,  L.  C,  ISIIs,  p.  14l>,  for  the  law  respecting  suspension 
and  resumption. 


I 


' 


Sits/wnsion  of  Sjwrir  /'(n/incii/s  and  Crisis  of  1837     95 

a  specie  redeiuptioii.  A  second  iusurrectioii  in  the 
followiuLi:  X<)veiul)er  ohliyed  tlieiii  a<;uin  to  suspend, 
the  suspension  l»ein<;'  authorized  and  facilitated  hy 
an  ordinance  of  tiie  Special  Council  passed  the  Hth 
Xoveniber.'  Circuhition  during'  the  suspension  was 
liniiteil  to  the  paid-in  capital  stock.  .  nd  tlu'  hanks 
were  ol)li<>ed  to  retain  the  spocio  hel  hy  them,  and 
not  to  sell  it.  except  to  tln^  ^•overninent.  The  oi'di- 
nance  applied  also  to  the  Hank  of  Hrilish  Xortii 
Amei'ica  and  La  Banque  du  Peuple.  Diirini;-  tlu; 
authorized  sus])ension.  hank  notes  hecanie  a  le^al 
tentlei-  in  stay  of  proceedin<;s  at  law. 

On  the  JTtli  July.  IS:JS.  the  new  Lieutenant-(  rovernor 
of  Upper  Canada.  Sir  (jeorge  Arthur,  intimated  to  tht^ 
l)anks  of  the  i)rovince  tlie  ]>eculiar  interest  taken  hy 
llei'  ^lajesty's  (lovernment  in  the  stat(;  of  the  cui-- 
rency  in  all  paiis  of  the  empire,  and  urj^-ed  upon  them 
the  propriety  of  ag'ain  paying-  in  specie.  Exchange 
was  low.  the  country  (]uiet.  and  much  specie  had  been 
imported  for  the  use  of  tin-  govt'i'iiment .  The  times 
were  pi-opitious.  aiid  he  tried  to  arrange  an  early  and 
simultaneous  resumption  hy  all  the  hanks.'-'  The  (iore 
Bank  was  willing  to  enter  into  communication  with 
the  other  hanks,  with  a  sim-ere  wish  to  give  ejfect  to 
the  plan.  The  Commercial  Bank  was  pn^pared  to 
rt'sume  as  soon  as  the  other  institutions  named  a  day 
for  the  puri»ose,  so  that  a  sinuiltaneous  resumption 
shoukl  occur.'  The  Bank  of  L'pper  Canadii  replied 
in  a  long  hotter,  dwelling  on  the  puhlic  inconvenience; 
and  distress  which  it  feared  would  attend  a  icsump- 
tion.     The  hank  ti'ied  to  throw   the   responsihility  of 

'Ordinances  of  the  Administrator  d."  tlie  (Toviirnnient  and  Sjiecial 
Council,  L.  C,  IStis,  p.  lo,  :.>  Vic;.,  cap.  i. 

-Journal,  U.  C,  ISIl ,  .ij^pendix,  vol.  II,  part  ii,  ji.  (in'.l,  Circular 
of  Hir  Geortre  Artliu:, 

•Ibid,  p.  (n4. 


m 


96 


Till'  C'anmlitin  Bankimj  Sydem,  1817-1890 


P 

f 


the  postponement  upon  tlie  Commercial  Bunk,  and 
then  counselled  wuitin«-  until  the  heavy  crop  of  wheat 
liad  been  harvested  and  hrouj,dit  to  market.   But  when 
that  time  ari-ived  there  was  increased  hostilitv  on  the 
American    frontier.     Specie  could   not    be    imported 
safely,  and  Sir  (ieorge   forbore   to   urge  resumption 
In    May,    18HU,    the  Bank   of    Upper   Canada    again 
opposed  resumption  with  the  Lower  Canada  banks. 
The   renewal  of  the  stay  law  was  secured  to  the  Jst 
November,   l.s;^!).     (2  Vic,  cap.  13,  U.  C.)     Then  the 
bank  practically  refused  to  resume  until  the  statutoi-y 
authf  rity  for  suspension  had  expired.     The  Lieuten- 
ant-Governor could  exercise  no  coercion  under  the 
law,  and  the  advantage  of  the  government  deposits 
enjoyed  by  the  Bank  of  Upper  Canada  compelled  the 
other  banks  to  follow  in  its  wake.' 

Aided  once  more  by  the  expenditures  for  military 
purposes,  and  with  no  practical  injury  or  check  to 
trade,  the  banks  of  Lower  Canada  resumed  specie 
payments  on  the  1st  June,  18;}0;  those  of  the  Upper 
Province,  the  law  having  expired,  on  the  1st  Novem- 
ber of  the  same  year. 


g  15. —EFFECTS    OF    THE    CRISIS    AND    SUSPENSION 

According  to  instructions  from  Downing  street, - 
the  Upper  Canada  act  continuing  the  stay  law  had 
forbidden  the  payment  of  dividends  during  the  sus- 
pension. But  as  this  endured  for  only  six  months, 
the  regular  distribution  of  profits  was  little  interfered 
with.  The  affairs  of  the  banks  in  both  provinces  were 

'Ordinances  of  the  Administrator  of  the  Government  and  Special 
(ouncil,  L.  C,  1888,  p.  (JJ9. 

-Journal,  U.  C,  183!),  Appendix,  p.  (iu9. 


ls;i:i 

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t; 

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7  A    G 

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8 

Epicts  of  Ihr  Cris's  (t)i(l  Suspension  97 

coiiductod  with  oivat  caution  and  prudence.  Partly 
for  this  reason,  partly  i)ecause  of  the  depression  in 
Canadian  export  trades  which  followed  the  crisis  of 
1.SM7  in  (ireat  JJritain  and  the  LTnited  States,  the  hank 
profits  durin«^-  the  suspension  were  not  excessive.  Fol- 
lowing- are  the  rates  of  the  dividends  declared  hy  f,,ur 
of  the  banks  between  \H:\'2  and  IS40:' 

ls;i;.' 
llAMvH.        per  coiit. 

Montreal....  7  .v    ."> 

Ciiie))eir (I 

UjiperCan.    s  .^  is 

Coinincrcial    

The  ]^,ank  of  .A[ontreal  therefore  distributed  54  per 
cent,  on  its  capital   in   the  four  years   preeedino-  sus- 
pension, and  4:5  per  cent,  in  tin;  four  y(>ars  inchiding- 
It  (18:57   1840.)    But  the  latter  figure  should  be  dimin- 
ished by  the  K;  per  cent,  premium  on  new  stock  paid 
to  the  old  shareholders  in  18:}S.     Th(>  Bank  of  Up[)er 
Canada   divided   IJO   pi-r  cent,    in  the  earlier.  ',\2  per 
cent,  in  the  later  period;  the   Commercial  :>8  and  82 
per  cent.     From  the  last,  however,  must  l)e  deducted 
6  per  cent,  premium  paid  f.»r   new  stock  to  the  ori^-i- 
nal   proprietors,  and   some  amount  to   re]>ivsent  the 
cost  of  starting-   the   bank  in    1882   and    1888.     The 
Quebec  Bank,  through  exceptional  causes,  passed  its 
dividends  in  1884-80.  and  is  not  properly  included  in 
the  exhibit.     The  capital  of   the  Bank   of  Montreal, 
£25(),()(»(>  in  1887,  was  increased  to    f48:i.()8()  in  ]84(»: 
that  of  tlie  Coimnercial  Bank  fn.m  flOO.oOo  in    |88^. 
to  nearly  1'2()(),()(),)  in  1888.      It  has  been  said  that,  as 
a  rul(>.    suspensions   of  specie   payments  are  highly 
profitable  to  banks  of   issue.      And  vet  our  corrected 
comparison  between  a  period  of  specie  paymeuLs  and 
^Journal,  Can.,  IS-')!),  Appendix  no.  07. 


11 


IIU 


rr 


98 


Tlin  Ciuiadiini  lUinkimj  Si/s/ou,  18K-1890 


w 


one  chiefly  of  suspension,  affords  no  proof  of  the 
prin(!iplo  in  poin^  either  of  iij^^gregate  profits  of  tlie 
banks,  or  the  ratio  of  their  earninj^s  to  capital.  One 
cause  of  th((  excei)tion  was  douhth'ss  the  cautious 
management  of  tlie  banks;  otlier  and  more  e\i»licit 
reasons  ai)pear  to  luive  been  tlie  restraints  imi)()se(l 
upon  the  banks  by  law,  by  circumstances,  and  by  their 
own  mutual  competition. 

The  legal  restraints,  such  us  prohibition  of  the  use 
of  inconvertible  notes  in  government  transactions 
and  the  limitation  of  issues,  are  already  familiar. 
The  second  group  imist  be  discussed  in  connection 
with  the  benefits  derived  by  the  public  from  the  sus- 
pension. Properly  to  estiuuite  tliese  will  be  diflicult. 
for  they  are  mixed  with  evils,  misfortunes  and  loss 
brought  by  reaction  from  the  fever  of  speculation. 

The  political  situation  in  Lower  Canada  had  des- 
troyed confidence  in  the  secui-ity  of  property,  depre- 
ciated its  value  and  arrested  the  improvement  and 
settlement  of  tiie  country.  Landed  })roi)erty  had 
declined  to  an  alarming  extent.  In  the  first  year 
succeeding  the  crisis  the  timber  trade  had  suffered 
little,  but  the  province,  instead  of  exporting,  was 
obliged  to  import  grain.  The  number  of  immigrants 
arriving  at  Quebec,  no  less  than  ,")'2. ()<)()  in  l^'A'J.  fell 
to  5. ()()()  in  IS'.iS.  This  loss  also  checked  the  advance 
of  the  province  '  Upper  Canada  had  ex])erienced 
similar  insecurity  and  depreciation.  By  August, 
18-38,  goods,  chattels,  lands  or  houses  would  not  bi'ing 
at  forced  sale  a  third  of  the  former  prices,  confidence 
was  sadly  lacking  in  trade,  thousands  of  settlers 
were  leaving  the  province.     The  inconvertibility  of 

'Lord  Durham's  Report,  p.  21. 


Tr 


KtTccts  of  the  Crisis  awl  Snsprii.iion 


!I9 


property  left  (lel)t<)rs  witlioiit  the  nunins  of  luootin^r 
tlieir  engu^-emeiits,  1111(1  liabilities  comparatively  tritt'- 
ing'  \v«>re  often  found  suflicient  to  ruin  those  who  had 
justly  thought  themselves  opulent.  The  ordinary 
influx  of  immigration  and  Hritish  capital  had  been 
suspended,  and  work  on  pul)lic  improvements 
stoi»ped.' 

In  the  opinion  of  one  bank  --the  suspension  enabled 
the  Canadian  banks  to  atford  reipiisite  facilities  to 
customers  and  the  public.     This  could  not  have  been 
done  had  specie  payment   l)een  ompulsory.""'     Hut 
all  the  banks  were  burdened  by  many  (lel)ts  overdue, 
the  result  of  the  liberal  discounts  that  preceded  tho. 
crisis  beinjr  locked  up.  in  part,  in  lonjr  speculations 
by  the  l)orrowers.  •    The  Bank  of  Montreal  wrote  that 
••to  a  considerable  extent   banking   facilities,    by  a 
forced  system  of  renewals,  were  contined  to  the  class 
chiefly  indebted  to  the  banks  at  the  time  of  suspen- 
sion.'"'    Similar  testimony  was  given   by   the  other 
banks.      And  when  the  law  was  al)out  to  expire  the 
cashier  of  the  Bank  of  the  People  (afterwards,  as  8ir 
Francis  Hincks.  Finance  Minister  of  the  Dominion) 
acknowledged   before   a  committee  of  the  Assembly 
that  the  suspension   had    not   enabled   tlie    banks  to 
extend  their  accommodation. ' 

In  one  case,  at  least,  the  contrary  result  occuri-ed. 
The  Bank  of  Upper  Canada  had  the  goveinment  de- 

Motirnal  U.  ('.,  ]s;]!»,  Appendix,  vol.  IT,  jnut  ii.  p.  rA\. 

Journal,  Can.,  IS.",!*,  Appendix  no.  (i7,  HL'plie.s  to  (^le.stion  17 

■'Journal,  U.  ('.,  1S;^7-:!S,  Appen.lix,  p.  2\2  et  m/. 

'Journal,  Can.,  lS5i).  u(  supra. 

\)o.irnal,  U.  C.  ISiJ'.i,  vol.  II,  part  ii,  pa^e  77(i.  Cf.  also  p.  7(i;5 
Evi.lence  of  Mr.  Prou.ifoot,  President  of  tlie  Bank  of  Upper  Can' 
ad  a. 


1.11 


'f! 


;l 


100 


'I'lic  ('(uiiKlitiii  ilitnkinii  Si/s/nit,  1817-18!)0 


ptjsits,  was  the  iiKMliuni  of  the  goveniiiicnt's  dishurst!- 
iiRMits,  was  iiiidcr  lar^c  advances  to  the  itroviiice. 
and  (h'alt  hugely  in  government  excluuiKe  on  l.on- 
(h)n.  It  aeted,  theret'ori-.  rather  as  an  oi-^an  ol"  finan- 
cial achninistration  tlian  as  an  institution  for  the 
assistance  (.f  a^n-icnJture  and  t  ;.ninierce.  In  1^:57.  its 
profits  on  sterling  exchange'  exceeded  tlu'  wlioh".  in 
J^<MS  the  luilf.  of  its  dechued  (livi(h'nds.  'I'hi'  i)oard 
of  (h'rectors  stopped  discounting  at  the  offices,  and 
compelled  all  dealing  to  he  done  diivctly  with  the 
head  office.  'I'hcir  refusals  of  discount  acconnnodation 
caused  merchants  and  others  accustomed  to  depend 
upon  it  not  onl\'  great  inconvenieiu-e.  hut  also  serious 
injury.'  From  the  weight  of  evidence  we  are  ohiiged 
to  conclude  that  the  Canadian  i)ul)lic  did  not  derive 
additional  heneflts  in  the  way  of  discounts  from  the 
suspension  of  specie  payments.  'J'lie  reports  of 
amounts  discounted  each  month  before,  after  and 
during  the  suspension,  show  that  in  hoth  ']»'"«'vinces 
the  average  of  amounts  discounted  each  montn  was 
considerably  less  duiing  the  susi)ension.  than  either 
before  or  after  it.' 

'Journal,  U.  ('.,  18;;!i,  vol.  11,  piut  ii,  p.  HID  et  scr/.,  Letter  from 
the  Bank  of  :\Iontreal. 

-The  following  table.s,  conipiltKl  from  the  Committee  Reports  of 
18;!7,  ls;J7  :\s,  |S41  and  IS.")!!,  comprise  the  available  statistics  on  this 
point: 


i 

I 


E(fci'fft  nf  thr  Crisis  nil'/  SHyirnsinn  ] 


01 


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loa 


ry  Canadian  /ian^-im/  Si/s/nii,  1817-18!tO 


It  will  li(^  n>rn('iiil)('r(i1  tlint  tlu;  ('Dmiiicrcial  H  uik 
iiiKJ  fjorc  Miiuk  were  calliii;^'  up  llicir  stock  in  this 
period,  iiiid  so  <|o  Mot  show  in  tlirir  rrtiiin  the  im- 
ini.\('(l  ('(Tccts  of  the  siisponsioii.  The  Montreal  I'ank, 
also,  was  c^illin;;'  np  added  stock.  Its  fij;iires.  there- 
tore,  furnish  specially  strong  contirniation  of  the 
eoiuduHiou  in  the  text,  ior  even  with  its  means  thus 
increased,  its  discounts  wei-e  less. 

The  fact  is.  the  hanks  were  compelled  i)y  circnm- 
staiu-es  to  redeem  theii-  liahilities  in  forei;;n  e.\(dian^^e. 
l<'or  a  short  time  the  I'ank  of  L'pper  Canada  i-efused 
to  f^'ve  anything'  for  its  notes.  '5ut  after  causin;^ 
great  inconvenience  it  ^tive  up  the  exix'riment.' 
(yOni|)lete  suspension  would  have  heen  ruinous.  This 
tlie  hanks  appreciated.  Hedem]>tion  in  e.xcdiangc 
was  still  redemption,  and  tlie  novd  to  maintain  it.  as 
well  as  its  mainteiuuuH'.  (du'cked  excessive  issue  of 
notes,  and  compelled  the  usual  care  to  loan,  not  only 
safely,  hut  so  that  new  credits  should  be  speeclily 
availahle  and  well  in  hand.  Hut  in  redeeniin}.?  by 
exchange  tliere  was  an  opportunity  to  exploit  the 
public  in  charges  for  premium  that  the  banks  some- 
times improved.-  Tn  this  respect  tlie  effects  of  the 
suspension  were,  instead  of  benefits,  only  added  ex- 
j)ense  to  the  public,  while  the  banks  were  able  to 
recoup  themselves  for  some  of  the  losses  incurred  in 
the  crisis. 

The  highest  I'ate  in  suspended  bank  paper  for 
sterling  exchange,  was  reached  in  Montreal  in  July, 
liS87,  viz.,  1221.  'J'oward  the  end  of  the  month  it 
reached    I'il)  in  Toronto.  i)ar  IxMng  lOO.;")!)."     At  the 

'.Tournal,  U.  C,  ISllii,  vol.  II,  pint  ii,  p.  770. 
-  fbid. 

Mournal,  V.  C,  I8;>7-:!S,  Appundix,  :!il  Report  of  the  .Select  Coin- 
niittee  on  Finance,  ji.  !Mi. 


h'll'rr/s  of  llif  Crisis  titiil  SllS/ifHsi(i/i 


io;{ 


same  (lutes  the  Hank  <•('  rppor  ('aimda  was  srlliii^- 
l)i(ls  oil  London  for  I  I.')  to  I  Hi  in  s\n  cic.  'I'liis  (h'prc- 
ciation  of  inconvertible  hank  notes  conf  inned  thron^Hi 
ls:{T.  the  rate  avera^in^'  r,\  to  7]  per  cent.,  hut  in 
An^iist  toiieliinn'  10  per  cent.' 

The  (h'preciation  fell  in  January.  |s:^s.  to  •.»  per 
cent,  or  less.  Hut  ^oods  and  produce  could  usually 
he  hoiioht  on  <>(puil  terms  with  either  the  notes  of  a 
s|)efie  paying  or  a  non-specie  payin^^  hank.'  In  Au- 
gust the  hanks  in  LIpi>er  Canada  were  redeeming; 
their  notes  in  any  amount  hy  hills  of  exchange  on 
I.omion  and  New  York,  and  within  I  per  cent,  of  the 
rate  at  Montreal  (then  on  a  specie  hasis).-'  The  Com- 
mercial J5ank  aftt'rwards  nuule  a  i>ractice  of  redeem- 
ing-  for  its  customers  only.  A  curious  hr.t  ]»rotitahle 
business  was  cari'ied  on  in  Lower  Canada  on  the 
basis  of  the  2  jter  cent,  discount  on  the  inconvertible 
rpper  Canada  notes  circulating  in  the  province.  The 
Hank  of  the  People  was  somewhat  weakened  after 
tlu'  defeat  of  the  insurgent  section  of  the  lieform 
party.  Sonu'  time  in  I8HS  it  was  sold  to  the  Bank  of 
^Montreal,  who,  though  emi)owered  hv  the  province 
in  \i>',i7  to  collect  debts  due  them,  notwithstanding 
tlie  exi>iry  of  their  charter,  were  legally  incai)al)le  of 
establishing  an  office  of  their  own  in  lT]>])er  Canada. 
They   worked  under  the  name  of    the  Bank  of  the 

'Journal,  II.  C,  18;;7-;'.8,  Appendix,  ]>. !)(;,  SnJ  Report  of  the  Select 
Coiiiniittee  on  Finanre. 

-'.lournal,  U.  C.  ls;i!i,  A))pen(lix,  vol.  11.  part  ii,  p.  (in.  Letter  of 
the  HanU  of  Upper  Canada. 

■'Tlie accompanying'  table  of  rates  of  prenihun  on  sterlinfj  exchange 
will  illiistiate  the  deiirecs  of  depreciation.  Uj)  to  March,  1838,  the 
(luotation.s  of  tiie  Hank  of  Upper  Canada  furnish  the  specie  prices. 
Then  from  June  to  October,  inclusive,  ]8;!8,  and  from  June  to  Dec- 
ember, inclusive,  18;!!i,  the  Bank  of  :Montreal  provides  the  specie 
rate  of  sterling  exchan^'e  u{,on  London.  The  depreciation  is 
ai.proximately  expressed  by  the  difference  ])et\veen  the  higher  and 


m 


i' 


\m 


104  Till'  Canadian  />'a/i/n'ni/  Si/r/rni.  1817-1890 

People,  and  besides  the  usual  profits,  aecpiired  added 
K'aiu  by  the  easy  process  of  buyiuK"  up  the  I'eojjle's 
notes,   really  their   own.   at   the   discount    in    Lower 

tlie  .specie  into,  tlie  .selling:  rate  in  une  province  heinj:  always  coni- 
imre.i  witii  tlie  sellinj,'  rate  in  the  otlier,  or  tlie  Inivin^  rate  with  the 
l)uvinij:  rate. 


is;;: 


is;'„s 


hs.-.i). 


— Jannary . . . 
Feliriiary  . . 

^larch  ..... 

April 

May 

June - 

July 

August 

Septemlier . . 

Octoher 

November  . . 

December. . . 
—January  . . . . 

Februarv  . . . 

March  ..\... 

Ajiril 

May 

June 

July 

Anirust 

Sei>teml)er . . 

Octoher 

November.. . 

December. . . 

-.lanuary  .... 

Februarv.. . 

:\Iarch.'.... 

Ai)ril 

May 

June 

July 

Auj;ii.<t 

Septemlier  . .  . 

Octolier 

November  . .  . 
December  .  . . 


jBaNK    I.K     .Mn.VTItKAI..'        I'^NK    <>^'    I"!'!'!;!! 


1 

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ll.'.(        , 

"        1 



Kfccis  of  llir  Crisis  and  S/is/irnsion 


105 


Caiuula.  Miul    iviuittiug-  tlicin  to  tlio  UpjuM-  Province 
foi-  rc-issiio. 

TIk'  ivstmint  imposed  I)y  the  inntiiiU  comi.etition 
of  the  hanks  wjis  (  xereised  thron^h   tiie  \v(>eklv  ex- 
changes earned  on  het\v,.en   tlieni.      Xow  a   rej^nilar 
redeniptioji  effeetively  prevents  inflation  of    a  hank 
note  (•urr-ney.  and   imposes  njx.n   tlie    partieipatino- 
hanks,  if  thevare  to  eontimie  in  existence,  tlie  neees^ 
sity  of  pnirlenee  in  their  eonduet.     The  ex})eriene<'  of 
New  Kno-hiiid  with  the  Suft'olk   hankino-  svstem   lias 
proved  tiiis  and  i)roved  it  for  all  time.     The  jx.wtM-  to 
refuse  at  the  counter  the  notes  of  a  suspended   hank 
was    a    i)ow(M-    of    coercion.        The    ]iank    of    Tppor 
Canada  emph)yed  it  to  enforce  the  settlenu-nt  of  the 
weekly   halances  in  exchanoe.        1„   J.ower  Canada, 
also,  the  si)ecie  ])ayment  of    halances  could    m)t   he 
exacted,  and  notes  could  not  herec<'ived  hecausethey 
were  not  redeemahh".      Hut  redemption  was  ohtained 
notwithstanding-.     The  dehtor  haidcs  were  forced   to 
hand  over  in  settlement  some  of  their  hest  discounted 
paper.      And  these  notes  wi-re  re(I(>cm<Ml  in  duv  tinu> 
hy  the  makers,  leading-  ex]>ort  merchants,  hy  sterling 
hills    drawn    against     shipments    of    grain,     potasht 
ginseng  and  timher. 

The  good  etfects  of  their  careful  policv.  aiul  the 
restraints  imposed  hy  law.  hy  circumstances  and  hv 
their  mutual  competiticu.  were  evident  in  the  strengtli 
and  stahility  of  the  hanks,  as  well  in  th<>  depressTon 
that  followed  th(>  crisis  as  in  |li,>  revival. )f  comm..rce 
and  agriculture  that  finally  came.  The  four  factors 
have  s,>rved  nou-  to  explain  the  moderate  divi. lends 
paul  during  the  suspension,  hecause  in  IS!}?.  Jt^iJS 
and  l.s;{i>  they  served  to  prevent  an  inunoderatc 
expansion.  With  this  in  their  favor  the  hanks  found 
fhe  resumi)ti(m  comparati-.-.dy  easy,  the  countrv, 
innocuous.  • 


r 
Ml 


,1 


II  ■■ 


i4  :! 


100  The  Canadian  Bankintj  Sjintem,  1817-]890 

Ji  1  <). — INCIDENTAL    DETAILS 

The  government  of  Upper  Canada  was  in  far  worse 
straits  duiing  tlie suspension  than  the  hanks.     It  was 
redueed  to  the  negotiation  of  its  dehentures  tlirough 
the  local  hanks,  who  remitted  the  securities  to  various 
English  houses,  and  drew  sterling  exchange  against 
them.     The  ])rocee(ling  provoked  the  jt.-otests  of  the 
Barings,  across  whose  counters  the  inteiv'st  was  pay- 
able, and  who  objected,  as  the}'  wrote,  to   ■•having 
our  names  inscribed  on  stock,  the  issue  of  which  had 
not  our  previous  knowledge  and  consent.""'     Various 
proposals  to  issue  inconvertible  not-s  for  circulation 
on  the   credit  of   tlie  government    were  defeated  in 
IKM  and  1S;^S.    In  reply  to  Sir  (leorge  Arthur's  letter 
of  the  20th  Xovember,  1S:}S.    Lord  Gleuelg  advised 
him  that  it  was  impossible  to  grant  him  provisional 
authority  to  give  the  royal  assent   to  an   enactment 
permitting  the  issue  of  such  notes,  even  though  the 
proceeds  were  intended  for  public  works  or  local  im- 
provements."'   The  second  financial  measure  of  18H9. 
howevei',  was  an  act  authorizing  the  issue  of  Tre.v- 
sury  n(^tos  for  .t'l  each  to  the  amount  of  t'250,000  stg. 
Concerning  this  act   I^ord  John  Russell  wrote  to  the 
Governor-General:  •' Her  Majesty  cannot  be  advised 
to  confirm  it.    The  issue  of  such  an  amount  of  small, 
inconvertible  currency,  as  a  resource  for  sustaining 
the  public  credit,  is  not  to  ])e  justified  even  by  the 
present  exigency  of  affairs.      '!'"-■;=      ';^      '/•      =;^      % 

'•It  is  of  great  importance  that  the  scheme  devised 
to  meet  the  pressure  of  the  passing  day  should  not 
be  such  as  to  preclude  Die  early  return  to  a  more 
salutary  course  of  financial  operations.*" 

'Journal,  U.  C,  is:'><),  Appendix,  vol.  II,  part  ii,  p.  547. 
-Ihid,  p.  .').">:;,  Letter  of  the  IJlst  January,  1839. 
■Mournal,  '  an.,  1841,  p.  ;!!»."). 


Incidental  Details 


107 


It  had  been  necessaiy,  some  time  previously,  to 
authorize  the  Receiver  (leneral  to  secure  a  loan  on  tlie 
government's  stock  in  tlie  Hank  of  Ui)i)er  Canada. 
(1  Vic,  cap.  1,  U.  C.  assented  to  (itli  March.  ISMS.) 
In  1840  tlie  act  was  repealed  and  tlie  Receiver  (Jen- 
eral  autliorized  to  sell  the  stock,  with  the  sanction  of 
the  Governor-in-Council.  Since  IS2:2,  the  province 
had  received  in  dividends  and  bonuses  t'JJS.IMr)  on  its 
subscription  to  2,000  shares  of  the  par  value  of 
t'2."),000.i  It  received  in  JS4o.  f2r),2r)0  for  its  stock.- 
The  authority  of  the  Lieutenant-Governor  iinnually 
to  nominate  four  of  the  fifteen  directors  was  repealed, 
and  the  Bank  of  Upper  Canada  lost,  in  law,  its 
official  connection  with  the  uovormnent. 

Th:s  was  one  of  the  measures  i)reparatoiy  to  tlie 
Union    of    the    Canadas.    the    constitutional    change 
which,    since    the    restoration    of    peace,    had    been 
undertaken  as  the  plan  most  likely  -to  relieve  the 
financial  embarrassments  of  Upper  Canada,  to  enable 
her  to  complete  her  public  works,  to  enable  her  to 
develop  her  agricultural  ca|)abilities.  to  restore  con- 
stitutional government  to  Lower  Canada,  to  estal)lish 
a  firm,  impartial  and  vigorous  government  for  both, 
and  to  unite  the  peoi)l(>,  within  that  one  common  feel- 
ing of  attachment,  to  British  institutions  and  British 
connection. "^   Oii  tlie  fifth  of  February.  IS41,  the  dis- 
appearance of  the  Upper  and  Lower  Provinces,  the 
birth  of  a  new  Province  of  Canada,  the  (u-eation'of  a 
conmion  legislature  and  the  comj.letion  of  the  political 


I 


'.Tonrnal,  Can.,  18-11,  .Appendix  0. 
-Ihid,  Appendix  B. 

■Journal,  U.  C,  is;i9.40,  p.   17,  Message  of  His  Exeellonry  tlie 
bovernor-Generai,  dated  tiie  7tli  Deceniber,  1839. 


■(t: 
■H  i 


108 


Thi'  Ctiiicdidn  liankinrj  Si/s/nn,  1817-1890 


revolution  known  as  ••rcsponsihlo  government'"  were 
proclaimed  by  the  ( Jovernor-(  Jeiieral  to  take  effect 
upon  the  tentli.  In  the  lu'xt  cluipter  we  shall  discuss 
the  course  of  hankinj;-  and  l)ankin^  legislation  in  the 
new  province  down  to  isno. 


)  I 


CHAPTER  IV 
PROVIXCK  OF  CAXAJ)A.    IS-ll-lsrxi 

5^^^- 'i'HE  HANK   OK  ISSIK   rUOI'OSKD   liV  LOHI)  SVDKN- 

HAM  • 

AmoX(j  tlie  questions  wliicli  oainc  before  tlio  first 
Parliament  of  the  province  of  Canada  were  provi- 
sion for  the  general  revenue  and  for  the  completion 
and  extension  of  the  public  works.  The  (iovernor- 
General.  Lord  Sydenham  (Charles  Poulett  Thomp- 
son), Avas  a  friend  of  :\Ir.  Samuel  Jones  Loyd  (Lord 
Overstone),  and  had  shared  his  theories  ui)on  cur- 
rencies and  their  i-eoiilation.'  The  eminence  and 
influence  of  the  author,  and  the  connection  <.f  the 
effort  with  the  movement  which,  in  England,  culmi- 
nated in  Peel's  Rank  Act  of  3844.  demand  that  the 
financial  and  monetary  expedient  devised  at  this 
.juncture  by  Lord  Sydenham  s'louhl  receive  exphma- 
tion  in  some  detail. 

With  the  pi-ofessed  object  ^  of  obtaininj;-  (a)  r.  paper 
currency  perfectly  secure  of  convertibility  into  the 
value  it  represented,  and  free  from  injurious  fluctua- 
tions: (/>)  the  whole  ])roHt  of  the  issue  foi-  the  l)ene- 
lit  of  the  state  (some  f:5().()0()  to  i:3r).(i()()  yeai'ly.  and 
capable  of  increasing-  to  double  or  treble  the  amount), 
(c)  not  less  than  f7."")().()()()  lo  1„.  placed  at  the  dis- 
posal of  the  state  for  the  i.ublic  works:  lie  suggested 

'"Reminiscences  of  liis  I'liltlic   l.ile,"'  l)y  Sir  Francis  Hi  neks,  K. 
C.  M.  <J.,  Montreal,  1SS4,  p.  (;9. 


r 


I 

i'  K 


m 


T 


110 


The  Canadian  liankinj  System,  1817-1890 


to  the  Select  Committee  on  Bankinjt?  and  Currency  a 
series  of  resolutions.'  In  them  was  outlined  the 
scheme  by  which  the  objects  were  to  he  attained,  viz.: 
(«)  the  establishment  of  a  Provincial  Bank  of  Issue 
under  three  commissioners,  who  should  be  vested 
with  the  sole  power  of  issuinj,^  notes  payable  on  de- 
mand: 

[h)  for  sums  of  sj  and  ui)wards  to  an  a^^o-regate 
issue  of  l-|,()()0,()()()  currency,  and  in  exce:.s  of  that 
amount  only  to  redeem  notes  or  to  purchase  bullion 
or  coin: 

{(■)  one-fourth  of  the  issue  to  be  a^aiiist  bullion 
or  coin,  and  tliree-fourths  against  government  securi- 
ties purchased  by  the  bu'ik  or  paid  into  it,  the  inter- 
est on  securities  to  be  used  for  management,  and  the 
balance  remaining  after  meeting  expenses  to  be  paid 
into  the  ]uib]ic  account: 

('/)   no   bank   to   issue   notes  after  the    1st   March 
liS4:}: 

{e)  2',  per  cent,  on  tju'ir  circulation  to  be  paid 
yeai-ly  to  banks  with  charters  expiring  after  the  1st 
March.  J 84:1  for  the  term  of  their  charters:  should 
such  term  bo  less  than  five  years  after  the  1st  March, 
184:^.  then  for  ten  years: 

(./■)  charters  expiring  before  the  1st  March,  1843, 
to  be  continued  with  the  power  of  issue  to  that  date, 
but  after  that  date  without  the  power  of  issue; 

{(/)  the  Bank  of  Issue  not  to  discount,  receive  de- 
posits or  deal  in  exchange. 

In  the  message  of  the  2()th  August,  1841,  Lord  Syd- 
enham   proposed    to    the    Legislative  Assembly    the 

'  "Memoir  of  tlie  Life  of  tiie  Right  IlonorableChaVies,  J.ord  Syd- 
enham, with  a  narrative  of  his  administration  in  Canada,"  edited 
by  G.  Pouiett  Sorope,  London,  1844,  p.  ;!I4. 


f 


T 


J 


The  Bank  of  Issue  Proposed  bii  Lord  Si/de».-inm      111 

assumption  by  tlie  province  of  the  issue  of  notes 
payable  on  demand.  The  aequisition  "of  u  cai»ital 
representing  a  revenue  of  not  less  than  I'lif). ()()()"'  is 
here  adA'anced  as  the  most  considerable  result  of  the 
plan.i  But  in  private  letters  the  noble  l.ord  had  de- 
scribed his  purpose  as  "the  establishment  of  a  per- 
fectly sound  paper  currency  by  means  of  a  State  Bank 
of  Issue,  the  principle,  in  short,  for  which  I  contended 
in  the  Cabinet,  in  the  first  instance,  in  l^'.V.i,  and 
which  Sam.  Loyd  has  since  so  ably  supported  in  a 
pamphlet."'-  This  acknowledgment  forms  conclusive 
evidence  that  the  resolutions  of  1S41  were  neither 
more  nor  less  than  a  plan  to  establish  in  Canada  the 
methods  of  note  regulation  advocated  by  the  I5ritish 
■•Currency  School." 

Xow  it  must  be  said  that  so  far  as  the  exj^erience 
of  either  Upper  or  Lower  Canada  taught  anything, 
it  was  that  theii'  bank  note  currency  was  satis- 
factory, worked  well  and  was  safe.  The  freedom 
from  tluctuations  would  have  attracted  Canadians 
of  that  day  as  little  as  it  would  those  of  the  i)resent. 
What  they  wanted,  what  in  fact  tlu'y  had,  was  a 
bank  note  currency  that  would  fluctuate  in  coi-res- 
pondeuce  with  the  number  and  amount  of  transac- 
tions wherein  it  was  used.  Cojupared  to  this,  the 
rigidity  and  inelasticity  of  a  government  issue  wei'e 
distinctly  objectionable.  'J'he  pi'omised  security  was 
merely  a  promise.  Covernment  currencies  had  hith- 
erto been  proposed  in  the  Canadas  only  when  the 
government  was  in  financial  straits.  For  the  cur- 
rency to  be  secure,  the  issuer,  eithei  ..f  the  notes  or 
of  the  security,   must  be   solvent.     The   banks   had 

'Journal,  Can.,  1S41.  p.  ;i!is. 
-Hincks,  ut  supra,  p.  oK. 


•i!  ■ 


ti' 


112 


'I'Ik;  Canadian  llankinii  Si/s/nn,  1817-1800 


coiiH!  out  of  tho  cri.sis  well  cnoiij^h.  Nouo  luid 
defaulted  on  tlioir  notes.  Never  had  a  eluirtered 
bank  failed  in  the  Canadas.  Never,  except  in  a  time 
of  war  and  commercial  disaster,  had  their  notes  fallen 
below  par  with  specie.  For  LJpper  Canada,  at  least, 
it  was  acknowledged  that  by  completely  stopping- 
discounts  for  a  time,  the  banks  need  not  have  sus- 
pended  then. 

Notwithstanding',  the  committee,  the  chairman  of 
whicli,  Mr.  Francis  Hincks.  was  a  warm  advocate  of 
the  (lovernoi'-denerars  views,  i-eported  to  the  Assem- 
bly in  favor  of  the  resolutions.  The  measure  thei-e 
metopposition.  It  involved  private  and  class  intei-ests. 
It  attacked  the  chartered  banks,  who  were  stronj^  in 
the  Assend)ly.  They  fought  it  because  the  loss  of 
the  issue  ])rivilej;-e  would  lessen  their  profits,  force 
them  to  i-educe  the  nund)er  of  theii-  branches,  and 
diminish  the  loanable  credit  at  their  conunand.  It 
would  cause  distress  more  oi-  less  serious  to  their 
customers,  the  commercial  classes,  through  the  cur- 
tailment of  discount  accommodation  thus  rendered 
necessary.  Further,  it  Avas  feared  that  a  i>rovincial 
bank  would  materially  increase  the  power  of  the 
executive.  The  effect  of  political  feeling*  was  joined 
with  the  efforts  of  the  bank  interest.  Conservatives. 
French  Canadians  and  some  recalcitrant  Reformers,' 
united  in  committee  of  the  whole  house  to  ])ass  the 
resolution  of  the  :}lst  August,  "that  it  is  inexpedient 
to  tak(>  into  fui-ther  consideration  during  the  present 
session  the  establishment  of  a  Provincial  Bank  of 
Issue,  or  the  issue,  in  any  way.  of  a  pai)er  currenc}- 
on  the  faith  of  the  Province.'"- 


i; 


'  Hinclvs,  III  supnt,  p.  70. 
-Journal,  Ciiii.,  18-11,  p.  4(1-1. 


T 


The  fj'i/ishtfion  0/1841  and  184:5 


ii;3 


As  a  fiscal  measure.  i)artly  in  lieu  of  the  defeated 
expedient,  the  legislature  that  s(;ssion  decided  to  im- 
pose upon  the  bunk  notes  issued  and  circulatinj,^  in 
the  province  a  duty  or  rate  of  one  per  cent,  per  annum. 
(4  &  .")  Vic,  cap.  '2i).)  The  tax  was  levied  on  the 
average  of  circulation  as  shown  by  statements  of  the 
notes  outstanding' at  the  end  of  each  month,  and  fur- 
nished to  the  Receiver  (Jeneral  on  the  IHth  May  and 
the  i.")th  November  of  each  year.  Those  making' 
wilful,  false  statements,  were  liable  to  the  ]>enaltv 
for  perjury,  while  refusal  or  nej,dect  to  furnish  state- 
ments incurred  a  line  of  f  1,000.' 


SJS. — THE    l.E(;iSI.ATl()N    OF    184!    AND    184;} 

In  their  final  report  (27th  August,  1841),  the  Select 
Committee  on  Banking  and  Currency  expressed  them- 
selves in  favoi-  <jf  adopting-  some  uniform  system  of 
banking  in  the  province.  They  i-ecommended,  there- 
fore, that  the  prayer  of  the  petitions  from  the  char- 
tered banks  of  the  province,  for  an  extension  of  their 
capitals,  should  be  complied  with  under  certain 
restrictions,  most  of  which  had  been  recommended 
in  a  despatch  from  H.M.  Principal  Secretary  of  State 
foi-  the  Colonies.-  This  despatch  was  the  circular  of 
the  4th  May,  1840,  issued  over  the  signature  of  Lord 
John  Kusseil,  with  the  expectation  that  provision  for 
the  observance  of  the  regulations  it  contained,  should 

'The  revenue  derived  from  the  rate  was  in  1.S41-4L',  £i»,5«0;  1842-4:;, 
£7,572;  1S43.44,  £10,484;  1844-4.-),  fi;{,i)L'(»;  1845  4(1,  ,£]5,8itSt;  1840-47,' 
£1G,0(;(;;  1847-48,  £12,47;!.  Return  to  an  A(hlre.ss  of  tlie  Honorable 
Legislative  Assembly,  dated  the  2!)th  January,  184!i.  .Journal,  Can., 
]S4(>,  Appendix.  In  most  cases  the  duty  was  equivalent  to  a  net 
income  tax  of  7  to  8  i)er  cent. 

-Journal,  Can.,  1841,  Ai)pendix  0. 
8 


I 


K 


114 


The  Canuilinn  /l>niki)i;/  Si/s/nn,  1H17-1S00 


lie  made  in  all  colonial  bank  charters.  Anion^*  lii-itisli 
Noi-tli  American  docnmcnts,  the  Assenihly  .lonrnal 
of  New  Brnnswick  is  the  only  one  to  conttiin  the 
orif^inal  circular.'  The  i-eport  which  the  Canadian 
coniniittee  hased  upon  it  is  worthy  of  full  descrii)ti()n 
luM-e  as  the  first  {^rouji  of  principles  adojded  l;y  tlu; 
province  as  the  foi'ni  for  its  hankinji^  lojiislation. 
In  connection  with  the  (rii'c-ular  of  the  :?()th  May, 
IS4('i.  the  regulations  of  1S4()  furnish  the  key  toneai'ly 
tlu*  whole  development  of  hanking  law  in  British 
Noi'th  America,  from  the  date  of  theii"  publication  to 
the  period  of  Confedei-ation.  Following-  ai'e  the 
restrictions  reconnnended   l»y  the  connnittee: 

Ist.  Tlie  iiniount  of  capit.'il  of  the  iroiupiiny  to  lie  HximI;  and  llie 
whole  of  siK^h  fixed  amount  to  he  suhseriheil  for  wiiliin  a  limited 
|)eriod,  not  jiicator  than  ei^rhtcen  mnnth.s,  from  the  date  of  the 
charter  or  the  act  of  ineorporation. 

I'd.  The  hank  not  to  commenoe  hnsine.ss  until  the  whole  of  the 
capital  is  suhscrihed,  a!id  a  moiety  at  least  of  the  siil)S('ription  paid 
up. 

i'xl.  The  amount  of  the  capital  to  he  paid  up  within  a  ^'iven  time 
from  the  date  of  the  charter  or  act  of  incorporation,  such  peiiod, 
unless  under  particular  circumstances,  to  he  not  more  than  two  years. 

4th.  The  debts  and  enga|:?enients  of  the  company,  on  promissory 
notes  or  otherwise,  not  to  exceed  at  any  time  thrice  the  amount  of 
the  paid-up  cai)ital,  with  the  addition  of  the  amount  of  such  de])osits 
as  may  he  made  with  the  ooiiipany's  estahlishment  by  indiviiluals, 
in  specie  or  government  jiaper. 

•")th.  All  promissory  notes  of  the  company,  whether  issued  from 
the  principal  establishment  or  from  the  branch  banks,  to  bear  date 
at  the  i)lace  of  issue,  and  to  be  payable  on  demand  in  specie  at  the 
place  of  date. 

<ith.  Suspension  of  specie  payments  on  demand  at  any  of  the 
company's  establishments,  for  a  }»iven  number  of  days  (not  in  any 
case  exceeding  sixty)  within  any  one  year,  either  consecutively  or 
at  intervals,  to  forfeit  the  charter. 

7tli.  The  company  sliall  not  liold  shares  in  its  own  stock,  nor 
make  a<lvances  on  its  own  siiares. 


'Journal  of  the  House  of  Assembly   of  the  Province  of  New 
Brunswick,  1841,  p.  41. 


'I'lic  I.cilisldlii))!  nf  1S41  (Dili  \M'.\ 


I  IT) 


stli.  llic  company  shall  not  advance  money  on  Hcniirity  of  lamlfi, 
or  lidiiHes,  or  nliips,  or  on  plcc|j;c  of  mercliHndisc,  imr  liold  UuuIh  or 
liouHes,  except  for  the  transaction  of  its  ImsineHH;  nor  own  nhipa  or 
he  enna^eil  in  trade,  except  aHih'alers  in  linilion  or  hills  of  exchange; 
l)iif  shall  confine  its  traiisactionH  to  discounting  commercial  paper 
and  nejrotiahle  setMiritics,  and  other  le>ritimate  hankinu'  hnsinesH. 

!lth.  The  dividenils  of  the  Hhareholdcrs  are  to  h«'  made  out  of 
profits  only,  and  not  out  of  the  <'apilal  of  the  i  i.m|iany. 

loth.  The  eom))any  to  make  ami  puhlinli  periodical  statementH  of 
its  assets  and  liahilities  (half-yearly  or  yearly),  show  iiij;  under  iieads 
specilied  in  the  annexed  form  the  a\('ravre  of  the  amount  of  its  notes 
in  circulation  and  other  liahilities  at  the  termination  of  eaoli  week  or 
month,  durin<:  the  jieriod  to  which  the  statemenl  refers,  and  the 
avi'rlijie  amount  (4'  specie  orothei'  assets  that  were  availalile  to  meet 
the  same.  Copies  of  these  statementH  are  lo  he  sulimitted  to  thc^ 
provincial  government,  and  the  company  shall  hi;  prei>ared,  if 
ealleil  ujion,  to  verify  such  statements  l;y  the  production,  as  confi- 
dential documents,  of  the  weekly  nr  monthly  balance  sheets  from 
which  the  same  are  compiled.  And  also  to  he  piepared,  upon  reipii. 
sition  from  the  Lords  ( 'ommissioncis  of  Her  Majef-ty's  Treasury, 
to  furnish  in  like  manni'r  such  further  informalinn  respectiti};  the 
state  or  procet'din;.'s  of  its  hanking'  e.'^tahlishtnents  as  tlieii'  Lordships 
may  .see  (it  to  c:ill  for. 

Ilth.  No  hy-law  of  tlii'  company  shall  he  repujrnant  to  the  condi- 
tions of  the  charter  or  act  of  inccupoiation  or  the  statutes  of  the 
province. 

rjtli.      *  "     *    *     The  i)rovisions  (if  charters  or  acts  of  incor- 

poration should  he  C(>nlin(Ml  as  far  as  practicahle  to  the  special 
powers  and  jirivilejjes  to  he  conferied  on  the  (!omi)any,  and  the 
conditions  to  he  ohserved  hy  the  company,  and  to  such  general  reg- 
ulations relating  to  the  nomination  ami  i>o\vi'r  id  the  directors,  the 
institution  of  hy-laws,  or  other  ])roceedings  of  the  company  as  may 
he  necessary,  with  a  view  to  ])ulilic  convenience  and  security. 

i;!th.  No  company  shall  he  allowed  to  issue  promissory  notes  on 
demand  for  an  amount  greater  than  its  paiil-up  capital. 

FoKM  OK  Ki:tii;.v 
Return  of  the  average  amount  of  tlr;  liiahilities  and  Assets  of  the 
Hank  of  during  the  jieriod  from  to 

Promissory  notes  in  circulation  not  hearing  interest .  t 

Bills  of  exchange  in  circulation  not  hearing  interest.    

Bills  and  notes  in  circulation  hearing  interest 

Balances  due  to  other  l)anks 

Cash  deposits  not  hearing  interest 

Cash  deposits  hearing  interest 

Total  average  lial)ilities 


I 


I 


lit;  Thr  ('iitunliau  /l,(id'inf/  Si/s/r„i,  1817-18'»0 

(/'oiii  mill  lull  I  ion t 

LatKU'd  and  (tllior  property  i>f  tli«  ciirpurntiun 

(ioverniMfiit  Hcciirilii'H 

rriiiniHHury  nott-H  <tr  ImIIh  of  oilier  bHiiks 

KalanccH  due  from  otiit'r  ImnltH 

Notes  and  IiIIIh  dimoimti'd  or  other  dtd)t8  iliu;  to  tlu' 
(■orporation   not    ineliidcd    under    tlu^    fore^tuiii;.' 

IuukIh 

Total  avfia^tt)  aHsets 

TIk'  si'coikI  j^ciicriil  law  nuictt'd  in  the  provinco 
with  r('S}t('('t  t<»  hunks  was  an  act  to  uuthori/c  thf 
hanks  incvioiisly  chartered  hy  a<'ts  of  either  oj"  the 
late  provinces  to  carry  on  their  hnsiness  throughont 
the  new  province.  (4  and  5  Vic,  cap.  '.>!).)  Tlie  con- 
dition was  that  notes  of  Upper  Canada  banks  issned 
in  liovver  Canada  shonld  hear  date  at  thi'  place  of 
issue,  and  he  payahh;  tliere  as  well  as  at  the  principal 
estahlishni'.'iit  of  the  corpoi-ation. 

The  three  lower  Canada  hanks  i)etitioned  in  1841 
for  the  renewal  of  their  charters  and  permission  to 
increase  their  capital  stocks.  Other  petitioners 
sought  incorporation  for  a  pro^iosed  Bank  of  the 
Niagara  District.  The  acts  passed  in  answer  to  the 
several  i)rayers  embodied  all  the  provisions  and 
restrictions  laid  down  in  the  connnittee's  rei)ort,  con- 
tinued the  chartei-s  and  extended  the  corporate 
powers  of  each  bank  to  the  whole  province.  The 
definition  of  the  i)owers  was  strict,  though  not,  per- 
haps, too  severe  when  the  conditions  and  temptations 
in  wliich  the  banks  worked  are  considered.'     It  was 

'The  clause  was  in  efTeet :  "'And  he  it  enacted  that  the  .said  cor- 
])oration  hereby  constituted  shall  not  either  ilircctly  or  indirectly 
liold  any  lands  or  tenements  (save  and  except  such  as  hy  the  first 
section  of  this  act  they  are  ajjecially  authorized  to  acquire  and  hold), 
or  any  ships  or  other  vessels,  or  any  share  or  shares  of  the  capital 
stock  of  the  corporation  or  of  any  bank  in  this  province;  nor  shall  the 


.< 


Till'  LixilinhiliiDi  of  l«n  iinil  ls|:i 


in 


>! 


«Miii('t«'(l  tliiit  no  Itiiiik  (»f1i(MT  slmuM  net  as  pmxv, 
that  tli«>  Itiiiik  slii)iil<l  not  hold  tlit>  stock  of  <)th(>r 
l)iinks,  except  wlicn  taken  for  iKtuii  Jidr  (h'hts  con- 
tracted in  the  nsnal  coni'Si-  of  hushwss.  and  tluit 
no  notes  unih'r  five  shillin;;s  shonhl  l)e  issned.  It 
was  furthiT  enacted  that  notes  nnder  tl  slionhl 
not  exceed  one-fifth  of  the  paidn|»  capital,  and  tluit 
the  total  circulation,  on  pain  of  charter  forfeiture 
and  the  joint  and  several  liahility  of  the  directors, 
both  to  the  puhlic  and  the  shareholders,  should  not 
exceed  the  cai)ital  stock  i)aitl  in.'  Hn.nch  hanks  were 
permitted  and  suhject<'d  to  the  restrictions  as  to  note 
issue.-     A  consi(h'rahle  holdinj?  of  jjaid  uj*  stock  v^ras 

saitl  cnipuratinn,  fitliiT  diri'ttly  or  imlirectly,  liMul  moiioy  or  nmkti 
ativanc'PH  upon  tlii'  Hocurity,  mortgage,  or  liypottu'cation  of  any 
lands  or  tenements,  or  of  any  ships  or  other  vessels,  nor  upon  the 
security  or  ple(l^:e  of  any  share  or  shares  of  the  said  cf)rporation, 
or  of  any  ^oods,  wares  or  merchandise;  nor  sliall  the  said  corpora- 
tion, either  dhectly  or  indirectly,  raise  loans  of  money  or  deal  in 
the  huyinj;,  selling  or  hurterinp  of  j;oo(ls,  wares  or  merchandise,  or 
entrage  or  t)e  enj;aged  in  any  trade  whatever  except  as  dealers  in 
gold  and  silver  hnllion,  hills  of  exchange,  discounting  promissory 
notes  and  negotiahle  securities,  and  in  such  trade  generally  as  ap- 
pertains to  the  husiness  of  hanking.  Proviiled  always,  that  the 
said  corporation  may  take  and  hold  fiijpotheques  and  mortgages  on 
real  estates  and  i)roperty  in  this  province,  hy  way  of  additional  secu- 
rity, for  dehts  contracted  to  the  corporation  in  the  course  of  their 
dealings." 

'The  Hank  of  the  Niagara  District  was  permitted  to  issue  notes 
for  less  than  £1  to  i  of  paid-in  cai)ital.    (4and  5  Vic,  cap.  Dti,  ;^  xiii.) 

-The  notes  of  the  (^uehec  l>ank  were  to  he  payahle  at  the  place  of 
date  and  issue  as  well  as  at  the  liead  ollice  of  the  hank.  In  1849 
this  provision  was  amended  to  conform  to  that  in  the  other  hank 
charters.  After  1Hi'2  the  greater  numher  of  what  had  heen,  tech- 
nically, oflices  of  di.«count  and  depo.sit,  were  changed  intohranches, 
i.  e.,  hanks  in  every  sense  of  the  lerni.  The  head  odices  ceased  to 
be  the  sole  places  of  date  and  issue,  l)Ut  notes  otherwise  issued  were 
payahle  only  at  the  branch  where  they  were  dateil  and  not  at  the 
principal  oflice. 


'fl 


} 


I 


I 


m 


118  T/w  CaniuUan  Bankimi  Si/s/rin,  1817-1800 

continued  ;is  a  (jualification  foi-  the  (lii'cctoratc. 
Charters  were  to  expire  at  tlie  end  of  tlie  first  session 
of  Parliament  after  tiie  1st  June  or  1st  December. 
18(>i.  Tlie  rene\V(>d  charters,  it  will  be  observed, 
continued  in  force  all  the  provisions  fen-  the  i)ublic 
security  previously  adopted  in  either  Lower  Canada 
or  Uppei'  Canada.  Among-  these  were  the  prohibi- 
tion of  loans  to  a  foreifj^n  state,  and  of  voting-  by 
alien  shareholders,  the  cessation  of  business  by  way 
of  discount  or  otherwise  during  a  sus])ension  of  s]>ecie 
payments,  the  enfoi-cement  of  subscri]>tions  to  capi- 
tal stock  by  requiring  an  immediate  payment  of  10 
per  cent.,  the  penalties  in  the  bank's  favor  for  default 
upon  calls,  and  the  l)ank's  pi'ior  lien  upon  stock- 
holders" debts.  For  the  Lower  Canada  banks  the 
most  important,  and  probably  the  most  objectionable 
innovation,  was  the  imposition  of  the  double  liability 
upon  their  shareholdei's.  a  restriction  whicl:  the}'  had 
escaped  at  the  time  it  was  required  of  the  younger 
banks  of  the  western  ])rovince  in  1S8I}-,S4. 

Tlie  royal  assent  to  tlie  four  laws  was  not  pro- 
claimed until  the  'i7th  April.  1S42.  In  October  assent 
was  granted  to  acts  extending,  on  similar  conditions, 
the  charters  of  the  Bank  of  Upper  Canada  and  the 
Commercial  Bank  of  the  ^lidland  District.  ])ermitting 
additions  to  their  capitals  and  subjecting  their  share- 
holders, like  those  of  other  banks,  to  the  double  lia- 
bility. The  increased  banking  capital  thus  autlun-ized 
was  for  the— 

Citv  Hank,                        -I  and  .">  Vic,  cap  !>7....  £l(i(»,ti{)(i 

Quebec  Bai.k.                       "          "  "  ',t4....  ir>0,0()0' 

Hank  of  Montreal,               "          "  "  !IS. . . .  2.")0,(i(lO 

Hank  of  N.  !>.,                     "          "  "  !i(i. . . .  l()0,()(i(t 

Commercial  Hank,               (■           "  "  2t). . . .  liOO.OOO 

Bank  of  Upper  Canada,      (i           "  "  27....  TOO.OOO 

Total tl, 200,000 

Total  existing  capital,  Ist  July,  1S41,  say    l,i»85,O0O 

'Already  imtliori/.cil  bj  royul  ulmrtcr. 


The  Le(jisht(ion  of  1841  and  184;} 


119 


In  1842,  certainly,  tlieie  was  no  monopoly  of  banking 
investments.  Whoever  wished  might  buy.  Nor  was 
there  other  monopoly.  The  freedom  with  whieh 
charters  were  afterwards  gianted  shows  that  the 
business  was  opened  to  more  jjronioters  than  could 
provide  the  capital  wherewith  legally  to  (pialify  to 
enter  it. 

The    Lower   Canada   banks   and   the   Bank  of    the 
Niagara   District   had    been   granted   but   two   years 
within  which  to  secure  the  new  capital   authorized. 
The  other  Upper  Canada  banks  got  five  years,  and  in 
1840  the  term  was  extended  to  1850.     (!)  Vie.,  caps. 
8(5  and  87.)     In   1840   these  two.  togetlier  with    the 
Bank  of  the  Niagara  District,  were  authorized  to  set 
aside  A'lno.OOO  each  and  i'^O.OOO  of  stock  resjx'ctively, 
to  be  known  as  '•  English  stock,"'  the  dividends  to  be 
made  payable  in  London,  and  books  to  be  opened  in 
that  city  for  the  transfer  of  shares.     (7  Vic,   cap. 
02.)     This  is    a    second    indication    of  the    reviving 
prosperity  of  the  province  and  the  demand  for  loan- 
able cai)ital,  of  whicli  one  of  the   first  signs  is  the 
increase  of  stock  authorized  in  1841  and  1842. 


'■•■  IP 


^11).  — HANK  RETURNS  FOR  1841;   THE  BANK  OK  BRITISH 
NORTH  AMERICA  AND  LA   HANKIE  DU    I'Ell'LE 

Altogether  there  were  ten  banks  that  reported  to 
the  conunittee  of  1841.  One  of  these,  the  Bank  of 
the  People,  in  Toronto,  had  already  been  sold  to  the 
Bank  of  Montreal,  and  leported  only  the  amount  of 
its  stock.  Two  others,  the  Farmers"  Joint  Stock 
Banking  Company  and  La  Banijue  du  Peuple,  were 
private  banks  acting  under  a  deed  of  settlement  and 


I'^O  The  ('anadiun  Bankituj  System,  1817-1890 


articles  of  co-partiieiship,  respectively.  A  fourth, 
the  Bank  of  British  North  America,  was  a  company 
formed  in  ]iS;}0,  with  a  nominal  capital  of  £'],()()0,00() 
stg.,  hy  British  capitalists  interested  in  the  prosi)erity 
and  commerce  of  the  North  American  colonies.' 
^(51^0,000  of  the  capital  were  at  first  paid  up  and  em- 
l)loyed  from  l.siJd  to  1840  in  a  banking  business 
extending  to  both  the  Canadas,  New  Brunswick, 
Nova  Scotia  and  Newfoundland.-  An  act  of  the 
Imperial  Parliament  authorized  the  bank  to  sue  and 
be  sued  in  the  name  of  an  officer  in  England,  and 
similar  acts  were  obtained  from  the  provincial 
legislatures  in  18;n  and  18:58.'  The  Nova  Scotia 
act  recites  that  the  company  had  introduced  the 
system  of  cash  credits  and  of  allowing  interest  on 
deposits,  usually  known  as  the  Scotch  system  of 
banking.  To  obviate  the  difficulty  of  acting  under 
many  different  statutes,  the  directors  applied  for  a 
Royal  Charter  in  1840.  They  obtained  it,  one  condi- 
tion being  that  the  cai)ital  of  a  million  pounds  should 
be  fully  paid  up,  and  another,  that  no  notes  under 
the  value  of  ij\  currency  should  be  issued.  The 
liability  of  the  stockholders  was  limited  to  the 
amount  of  their  subscriptions. 


It 


'  Vide  11.  M.  Martin,  "History,  Statistics  ami  Geography  of  Ui)per 
and  Lower  Caniulii,"  London,  1838.  On  p.  277  the  author  chiinis  for 
himself  and  a  Wm.  Medley,  Esq.,  the  credit  of  first  proposing  and 
interesting  others  in  the  establishment  of  the  IJritish  Bank. 

-.Tournal  of  the  House  of  Commons  of  the  Dominion  of  Canada, 
18(1!),  Appendix  I,  p.  (17. 

'7  Wm.  TV,  cap.  :!4,  U.  C;  S  Wm.  IV,  cap.  1(>,  N.  !?.;  1  Vio,  cap. 
24,  N.  S.;  1  Vic,  cap.  25,  L.  V. 


Ihinh  Ri'tHrns  for  1841 


121 


The  condition   of  tlie  banks  on  days  near  the  1st 
July,  1841,  was  as  follows:" 


Hanks 


Capital 


Circula- 
tion 


Total 
Specie 


Deposits 


r)0,.-)(;4 
.'27,04S 


Biink  of  B.  N.  America.  (;S)n,;i(io 

Montreal  Bank 5(i(),(iU0 

People's,  Toronto 50,000 

City  Bank L'00,OnO 

Banque  <lu  Peuple 1  ]5,7r)!l 

Com.  J}ank  of  Midi.  Dist  I'dO.Odo 

Bank  of  Upper  Canada,  20(),OOO 

Farmers'  Bank 45,12:.' 

(tore  Hank ,  loo,()0(i 

Quebec  Bank I  7."),000 

Total  currency 2.325,4r)0   021 ,991 


4o,82S     lS4,Si)f» 
120,17.")    2:!4,(;8(i 


Dis- 
counts 


£ 
o7"),7.")2 
!«6,5.5;! 


10S,r)72 

oS,211 

205,420 

142,849 

]4,:r)0, 
77,1 77 
.')7,787 


20,;i78 
8,170, 
82,80(1' 
55,125 
7,807 
26,885 
15,0()» 


.50,700 
25,. '!()(! 
it8,(i71 
144,00:! 
:J,070 
14,481 
55,219 


:!40,;^'.)l 
in.),  >i 8 
401,015 
400,027 
54,281 
105,2:!() 
145,:!02 


;58r.,891  '811,191  '3.269,499 


Viger,  De  Witt  et  Cie.,  the  French  partnership  in 
commendaw,  were  incorporated  in  lS4;j  as  ^^La 
Banque  (hi  Peuple^  The  principal  office  was  to  he 
as  formerly  in  Montreal,  and  the  authorized  capital 
£200,000,  the  full  payment  of  which  was  required 
within  two  years  from  the  passing  of  ihe  act.  (7 
Vic,  cap.  00.)  The  character  of  the  partnership  and 
the  division  of  powers,  profits  and  liabilities  between 
the  two  classes  of  partners  have  been  sufficiently 
described  near  the  close  of  chapter  ii.  This  peculiar 
constitution,  a  device  used  in  media'val  times  to  evade 
the  prohibition  of  usury,  was  continued  by  the 
charter,  and  the  stockholders  have  obstinately  clung 
to  it  ever  since.  The  qualification  of  the  principal 
partners  or  "members"  was  the  ownership  of  not 
less  than  forty  shares  each,  of  a  total  value  of   fHOO. 

'Journal,  Can.,  1841,  Appemlix  O,  statement  F. 


J  ! 


if: 


■  «' 


1 


0<) 


The  Cnnadian  iSankinn  !^!if<teni,  1817-1890 


New  members  might  be  admitted  and  old  ones  with- 
draw, proper  notice  being  given  of  the  change,  but 
the  total  number  of  members  was  never  to  be  less 
than  seven  nor  mort^  than  fifteen.  The  corporation 
as  thus  constituted  was  subjected  to  the  same  restric- 
tions as  to  note  issue,  total  liabilities,  suspension  of 
redemption  of  specie,  etc.,  and  granted  the  same 
powers,  as  the  joint  stock  banks. 


5j2(». — r()RKESl'()NDEN(  K  WITH  HKSPECT  TO  THE  DOI.r.AK 
NOTE  CIKCULATION 

The  circular  of  Sir  John  Russell  contained  certain 
regulations  respecting  the  issue  of  bank  notes  under 
,£1  currency,  which  had  been  eml)odied  neitlier  in 
the  committee  repori,  of  JS41,  nor  in  charters  passed  in 
that  year.  But  as  those  acts  liad  been  fully  considered 
by  the  local  legislature  and  the  (iovernor-General, 
as  a  disallowance  might  have  caused  embarrassment 
in  Canada  at  the  time,  and  as  the  power  of  regulating 
the  note  issue  in  the  future  was  reserved  by  the  char- 
ters to  the  legislature,  the  Queen  was  advised  to  con- 
firm them.'  Her  Majesty's  (lovernment,  the  Gov- 
ernor-General was  informed,  attached  great  import- 
ance '-to  the  early  reduction  of  that  small  paper  cir- 
culation to  which  the  Acts  in  question  give  encourage- 
ment," and  it  was  hoped  ••that  the  Canadian  Legisla- 
ture will  at  an  early  period  revise  this  part  of  the 
system  of  banking  in  the  province  and  secure  to  the 
people  of  Canada  the  benefit  of  a  metallic  circula- 
tion, which  is  incompatible  with  the  circulation  of 
paper  of  this  description. ""-' 

'Journal  Can.,  184^$,  p.  49,  Despatch  no.  103. 
^.lournal  Can.,  18415,  p.  4!t,  Despatch  no.  103. 


hollar  Note  Circnhtlicn 


12:5 


A  charter  was  passed  in  184(5,  the  t  rect  of  wliich 
would   have   heeii   to  extend  the   small  note  circula- 
tion.    The  imperial  authorities  felt  that  the  Canadian 
government   had  had   in   foui-  years  anii)le  time  foi- 
considering?  the  t-ndencies  of  their  system  of  bank- 
ing, that  the  reasons  of  temporary    expediency  en- 
tertained in  1842  for  waiving- their  objections  to  five 
shilling-  bank  notes  did  not  etiually  api)ly  to  the  new 
measure,  and   that  the  existence  of  rights  of  issue 
formed  no  reason  for  the  concession  of  similar  riohts 
to  new  establishments    Privileges  of  issue  enjoyed  by 
banks  in  the  United  Kingdom  before  the  acts  of  1844 
and  1845.  had  been  withheld  from  the  banks  formed 
after  a  certain  date.  They  believed  that  a  dollar  note 
circulation  was  unsound  and  dangerous.     The  same 
reasons  which  prompted  the  abolition  of  t'l  notes  in 
England,  called,  in  their  opinion,  for  the  restriction 
and  ultimate  discontinuance  of  the  dollar  notes  in 
Canada.'     Earl  Grey,   however,   was   unwilling  that 
the  bill  should  be  abruptly  disallowed.    Accordingly, 
he  referred  it  back  to  Lord  Elgin  and  the  Executive 
Council  of  the  province,  with  the  promise  that  if  they 
thought  a  change  inexpedient  the  royal  assent  would 
not  be  withheld.     The  Canadians  favore.l  the  reten- 
tion of  their  dollar  notes  and  assent  to  the  bill   was 
promulgated  in  January,  1848. 

This  was  the  last  noteworthy  endeavor  of  the 
Lords  Commissioners  of  Her  ^lajesty's  Treasury,  act- 
ing through  the  Colonial  OfHce.  to  substitute  -a  cur- 
rency fouiuled  on  a  sound  and  metallic  basis""  for 
the    dollar    not 


es    issued    by    the    Canadian    bank> 


latjt 


Journal,  C 
session  incorporating  La  Hanque  (ie^<  Mardian. 


IS47,  Ai)j)en(lix  W,  Despatcii  respecting'  the  bill  of 


1 

4  t 


>!■ 


E'll 


It 


'i! 


l'^4 


Tlw  (Janadian  Iktnkinq  Sii^tcm,  1817-1800 


ifi!  i 


Those  notes,  tliougli  objectionable  from  a  theoretical 
standpoint,  were  not  the  cause  of  practical  inconve- 
nience or  loss.  The  dangers  of  an  excessive  issue 
were  averted  by  the  limitation  of  notes  under  i;l 
to  one-fifth  the  paid-in  capital  stock  of  the  issuing 
bank,  and  the  active  system  of  redemption  between 
the  banks.  And  when,  in  1S7(),  the  banks  finally 
gave  up  the  small  note  issue,  Canadians  did  not  dis- 
pense with  paper  of  such  denominations.  They 
simply  transferred  the  issue  to  the  government. 


§21. — IMI'KKIAL    KECiULATIONS    OK    184(t 

The  despatch  quoted  in  <;$20  called  attention  to 
other  deviations  from  the  last  regulations  respect- 
ing colonial  banks.  These  provisions,  somewhat  dif- 
ferent from  those  of  1840,  were  communicated  in 
184(5,  together  with  the  following  self-explanatory 
letter:' 

Gireulur  2^Uh  May,  1.S4(i,  witJi  Rerised  Reffula/ions  to  he  ohserred  in  in- 
forponding  banking  companieit  in  the  Colonies. 

My  Lord:  On  the  4th  of  May,  1840,  Lord  J.  Russell  tranHinittedto 
you  a  copy  of  certain  regulations,  the  observance  of  which,  in  all 
cliarters  or  lejjislative  enactments  relating  to  the  incorporation  of 
b;inlving  companies  in  the  Colonies,  Her  Majesty's  Government  then 
considered  of  much  importance.  The  correspondence  which  has 
since  talien  place  on  subjects  of  tliis  nature,  and  the  arrangements 
adopted  l)y  Parliament  in  regard  to  ]5anks  of  Issue  in  the  United 
Kingdom,  appear  to  Her  ^Iaj<^sty's  Government  to  have  rendered 
necessary  some  modification  of  those  regulations,  with  a  view  to 
bring  tliem  into  exact  correspondence  with  the  principles  on  these 
subjects  established  in  this  country.     *    *     »    » 

These  regulations  are  forwarded  to  you,  not,  of  course,  as  inflexi- 
l)le  rules  to  be  in  alt  cases  insisted  on,  })ut  as  embodying  the  gen- 
eral principles  to  be  observed  in  the  preparation  of  Colonial  Acts 

Mournal,  Can.,  1.S47,  Appendix  W. 


I   ;l 


Imperial  Regulations  o/'184(i 


1S6 


for  the  incorporation  of  bankin-;  companies,  and  Her  Majesty's 
(ioyernment  consider  a  compliance  with  all  the  more  material  con- 
ditions  and  restrictions  of  much  importance  to  the  secnrity  of  the 
communities  in  which  siicli  hanks  may  he  estahlislied,  and  more 
especuilly  to  the  jxiorer  classes  of  such  communities.  I  must,  tiiere- 
fore,  impress  U|)on  you  the  necessity  of  usinj;  all  your  lejiitimate 
influence  to  procure  their  introduction  into  any  bills  which  may  he 
brought  into  the  Legislature  of  the  Odony  under  your  Government, 
for  tlie  incorporation  of  banking  companies,  and  with  this  view  it 
might  be  well  that  you  siiould  communicate  witli  the  promoters  of 
any  such  l)ills  in  which  these  considerations  may  be  omitted,  and 
point  out  to  thorn  that  the  instructions  which  you  had  received  from 
Her  Majesty's  (iovernment  would  i)Iaceyou  under  considerable  dif- 
ficulty in  assenting  to  any  sucii  bill,  should  it  pass  the  Legislature  in 
its  actual  form.  1  can  hardly  doubt  that  such  a  communication, 
aided  by  an  exphmatiou  of  the  grounds  on  which  Her  Majesty's 
Government  have  proceeded  in  drawing  up  these  regidations,  would 
have  the  desired  effect;  but  if  not,  and  you  should  nevertheless  feel 
it  your  duty  to  assent  to  the  Ai:t,  it  would  be  necessary,  in  transn>it- 
ting  the  Act  for  thesignilication  of  Her  Majesty's  ideasure,  that  you 
should  accompany  it  by  a  full  report  of  the  grounds  on  which  you 
have  procee.led.  I  have,  etc., 

W.    E.    (il.AOSroNK. 

Lieutenant-General, 

The  Eaui.  ok  CArnrAKT,  K.  ('.  ii.,  etc.,  etc.,  etc. 

Following  Mr.  (Gladstone's  letter  are  twenty  regu- 
lations. The  essential  variations  from  the  report  of 
1841,  and  the  existing  legislation,  are: 

{(i)  When  shares  are  transferred  between  the  period 
of  the  grant  of  the  charter  and  the  actual  commenc- 
ing of  business  by  the  bank,  the  responsibility  of  the 
original  holder  to  continue  for  six  months,  at  least, 
after  the  date  of  the  transfer  (^58). 

(/>)  Tile  total  debts  of  the  company  not  to  exceed 
thrice  the  i>aid-in  stock,  "over  and  above  tlu'  amount 
of  deposits  or  banking  accounts  with  the  company's 
establishments"'  (^13).  (The  expression  in  the  rejtort 
is  "deposits  of  specie  and  government  papei-.""     'i'he 


•ZH 


The  ('(imvli(t)i  JlouA-itii/  Si/sfetn,  1817-18!»0 


:il 


utility  of  tliis  provision  ])artic'ularly  after  circulation 
was  liinitiMJ  to  i)ai(l-iii  capital,  is  extremely  doubt- 
ful.) 

(c)  No  ijroniissory  note  to  he  issued  for  less  than  t'l 
Halifax  currenc^y,  and  nonc^  for  fractional  i)arts  of 
such  pound  (>5l4). 

{(I)  l^reach  of  the  special  conditions  upon  which 
the  coni]»any  is  enii)owered  to  open  itankin^  cstah- 
lishnients,  or  to  issue  and  cii'culate  promissory  notes, 
to  forfeit  those  privileges,  which  shall  cease  and 
determine  upon  such  forfeiture  as  if  the  period  for 
which  they  had  been  ^'ranted  had  exjiired  (Sl'"^)- 

(c)  The  charter  or  act  of  incorporation  may  i)rovide 
for  adilitions  to  the  cai)ital  of  the  company,  within 
specified  limits,  with  the  sanction  of  the  Li>i'ds  Com- 
missioners of  the  Ti'easury,  such  additions  to  be  sub- 
ject to  all  conditions  aiul  regulations  applying  to  the 
original  capital  (>;-'•)• 

The  retention  in  Canada  of  notes  under  i'l,  and  the 
waiver  of  their  objections  by  the  Lords  of  the  Ti'ea- 
sury, have  been  noticed  in  S-*>.  The  legislature  did 
not  venture  to  permit  increase  of  capital  stocks  with- 
out its  express  authoi'itv  for  each  instance.  But  the 
provision  of  regulation  number  eight  was  embodied  in 
sul)se(iuent  charters  as  a  necessary  safeguard  against 
sul)scrii»tions  in  bad  faith  or  decoy  subscriptions  to 
the  stock  of  new  banks.  So.  too,  i)enalties  of  charter 
forfeiture  were  imposed  for  breacli  of  the  various 
conditions  on  which  corporate  powers  and  privileges 
were  granted,  just  as  that  penalty  had  been  attached 
to  the  condition  that  no  sus})ension  of  specie  payment 


!      «  ! 


imperial  Refjiilutiunn  r/184fj 


l-.'7 


should  exceed  sixty  days,  consecutively,  or  during 
the  year.' 

The  document    just   described   conclud.'s,    f,,r   the 
prest'nt,  the  account  of  the  relations  of  the  Lords  of 
the  Treasury  to  the  Je^rjslative  development  of  the 
Canadian  hajdcing  system.     It  has  been  shown  that 
three  of  the  most    imj»ortant   j^roujjs  of   restrictions 
were  not  imposed  upon  Canadian  hanks  until  after 
the  Treasury  regulations  of  18:^:5.  1S4()  and  JS4<).  res- 
pectively, had  heen   transmitted  to  North    America. 
It  has  appeared  that  certain  new  precautions,  substan- 
tially similar  to  those  recommended,  were  taken  with 
regard  both  to  existing  banks  and  new  establishments 
soon  after  the  Ti-easury  circulars  wen-   received   ria 
Downing  street,      in   tlie  sketch  of  the  banking  sys- 
tems of  Xova   Scotia   and    New    Ihunswiek.   i"  will 
appear  that,  about  the   same   time.  lik(>   restrictions 
were  adopted  by  those  colonies  for  the  government 
of  their  incorporated  banks.     The  correspondence  of 
1S:{;M.s:54  with  Upper  Canada,  the  protest  of  the  col- 
onists that  banking  is  a  local  matter,  the  subjection 
of  the  (lore  Bank  to  the  double  liability  and  other 
provisions,  the  supervision  of  legislation  in  the  years 
immediately  before  and  after  the  crisis,   finally  the 

'Cf.  10  and  11  Vic,  cap.  112,  an  Act  to  incorporate  tlie  District 
r>ank  of  (iiu'lice. 

IS  Vic,  cap.  L'oi',  an  Act  to  incorporate  tiic  8t.  Francis  Hanl<. 

IS  Vic,  cap.  L'(L',  an  Act  to  incorjiorate  the  INFolsons'  Banlj. 

19  Vic,  cap.  7(),  an  Act  to  amend  and  consolidate  tlio  several 
Acts  incorporating;  ami  relating  to  the  IJank  of  Montreal 

19  and  20  Vic.  cap.  120,  an  Act,  Ac  (similarly  for  the  Com- 
mercial Bank). 

19  and  20  Vic,  cap.  121,  an  Act,  Ac  (similarly  for  the  Bank 
of  Upper  Canada). 


31 


n 

I. 

i 


138 


The  Ciinadiun  /iunkiiif/  Si/sl<m,  1817-1800 


nx^tioii  in  IS4I  of  tlu'  select  committee  upon  bankinjj:, 
are  [»erfi;u'iit  incidents,  but  tliey  form  only  links  in 
the  cliuin.  It  must  be  remembered  tlmt  before  the 
bank  in  j^  acts  of  1S41  and  1S4'J  came  into  effect  they 
wert!  submitted  to  Britisli  inspection,  and  that  the 
reg'ulations  of  1S4(5  \ver(\  in  due  time,  enacted  as 
Canadian  law.  From  evidence  so  varied,  forcible 
and  clear  as  the  facts  presented,  two  conclusions  are 
not  to  b«;  avoided.  ( )ne  is,  that  through  the  Lords  of 
the  Ti-easury  the  ripe  experience  of  Britain  in  matters 
of  banking  was  used  for  the  direct  advantage  of  the 
colonists;  the  other,  that  in  IS.")()  the  more  important 
safeguards  in  Biitish  Amei-ican  bank  charters  were 
primarily  due,  not  to  the  wisdom  of  local  legislatures, 
but  to  the  Judicious  intervention  of  the  Imperial 
(fOvernuK'nt. 


^22.  — KS47 -18.50 

Canada  had  shared,  to  a  considerable  degree,  the 
commercial  recovery  from  the  trying  losses  of  18IJ7- 
1SH'.>.  Indications  of  this  were  apparent  as  early  as 
1S4I.  when  the  banks  s(>cured  provision  for  the  in- 
ci'ease  of  their  capitals.  The  business  of  1841^  was 
described  as  sound  and  legitimate,  with  few  and  un- 
important failures.'  The  improvement  in  1S44  was 
still  more  active,  and  the  banks  were  able  profitably 
to  employ  the  large  amounts  of  capital  which  liad 
been  at  low  interest  the  year  preceding.'-   The  growth 

^  Ih inkers'  Magazine,  vol.  i,  London,  1844,  p.  '■Vl't. 
-Hankers'  Maijazine,  vol.  iii,  Report  of  the  Meetinj;  of  the  Iiiink  of 
British  North  America. 


lS47-lb50 


lU 


prociM'dod,  aiid  in  1H40  a  considcnildc  cxtt'iision  of 
cornnu'rcf    uiid    u^ricultiirc    to  n«'\v  districts  was   a 
feature  of  the  situation.      In  Fchruiiry  tlic  hank  note 
circulation,  only  t'!j»r):{.Dl(5  four  years  hefore,  toU(died 
t'l.<;si.24S.  nearly  the  highest  amount  reached  dur- 
ing the  period   KS41   to  1848.'     But  the  money  pres- 
sure in    Kngland   was  felt,  and  though  the  state   of 
trade  seem(;d  satisfactory,  shrewd  onlookers  of  Can- 
adian   events  had   some  apprehension  for   the   near 
future.'     The  im])ortations  of   hS47  were    excessive. 
The    consternation    caused   hy  the    Knglish    railway 
crash  spread  to  CaJiada.     Numerous  commercial  fail- 
ures   occurred    involving    large    liabilities.       I.,ower 
Canada,,  or  Canada   Kast.  as  it  was  now  called,  suf- 
fered the  most,  partly  because  the  previous  expan- 
sion   had    there    been    more    pronounced.      Extreme 
depri'ssion  followed  in  184S.     The  etfects  of  the  free 
trade  policy  of  Lord  John  Russell  and  his  party  were 
first  felt  in    their  full  force.      Canada  had  lost  the 
partial   monopoly  in  timber  and  other    natural   ])ro- 
ducts  established  in  its  benefit  by  the  old  protective 
system.     The   exports  of  pease  fell  25  per  cent.,  of 
wheat  00  per  cent.,   flour  40  per  cent.,  oats  over  75 
per  cent.,  barley  nearly  80  per  cent.,  and  i)ork  4r>  per 
cent.      The    stop    put    to    British    railway  extension 
especially  affected  the  timber  trade.    *A  large  stock 
of  timber  was  wintered  at  Quebec  :    in  every  article 
but  white  pine,  the  exi)orts  of  1848  fell  from  those  of 
1847  by  percentages  ranging  from  14  for  deals,  25  for 


: 


'Journal,  Canada,  1S41I,  Appendix,  Return  to  an  Adilress  of  the 
Legislative  AHsembly,  dated  •."itii  .Tanuary,  IS4!i. 
^Bankerii'  Magazine,  vol.  vi,  i>.  KiG. 


9 


m 


i  '■{ 


IMO  7'/ie  Caiinditin  Itankimj  Syslvm,  1817-18!»0 

elm,  '.V.\  for  asli,  to  Ho  per  <'(Mit.  for  oak  tinihi-r.'  The 
imports  of  I.S48  fell  to  i"2/.)r)8.71>S,  WM^)A\)  less  than 
ill  IS47. 

Su(!h  an  econoniie  shock  reacted,  of  coiirsts  upon 
the  l>anks.  Their  (Mrculation,  which  stood  in  March. 
IS47,  at  l'l,t)H4.41'},  had  dimiiiislied  i»y  L'M21, ()<)<>  on 
the  :}lst  Decimher,  and  fell  to  t'l. 1 14,208  in  June, 
184S.  They  could  have  accepted  this  contraction 
alone,  without  complaint.  It  was.  however,  accom- 
panied hy  losses  of  otiier  kinds.  In  1848  ami  184i) 
the  Bank  of  British  North  America  was  ohlijjfed  to 
set  aside  t'4;M 00  for  had  dehts,  reduce  its  dividend 
to  5  i)er  cent.,  and  take  t'O.OoO  from  ita  rest.-  The 
City  Hank  wrote  off  a  rest  of  €27,875,  the  (iore  Hank 
lost  the  whole  of  its  rest.'  In  I84'J  the  capital  of  the 
(Jore  Mank  was  reduced  from  t'lOO.OOO  to  t\S(^,0()0,  on 
account  of  the  losses  it  had  suffered  (12  N'ic.cap.  149). 
and  that  of  the  City  Hank  from  trjOO.OOO  of  author- 
iz«'d  stock  to  l':{7."),000,  the  paid-in  stock  from  l'21>4,- 
000  to  i'221,000.  the  value  of  each  share  from  l'2r)  to 
t'18  10s.  (12  Vic.  cap.  145).  The  (,)uebec  Hank  paid 
dividends  of  only  3.  2.  and  4  per  cent,  in  1848  to  1850. 
The  dividend  of  the  Hank  of  I'pper  Canada  was 
reduced  from  7  per  cent,  to  4  and  41  in  the  years 
succeeding-  tl\e  crisis,  and  more  than  I'O.OOO  was 
deducted  from  its  rest.  The  Bank  of  Montreal  suf- 
fered more  after  the  fashion  of  the  Lower  Canada 
hanks,  reducing  its  res*  by  f60,000,  and  its  dividend 
from  7V  per  cent,  in  184G  to  (5  per  cent,  in  1849. 


i.Toiirnal,  Can.,  184!»,  Appendix  Z,  :\rontreiil   Brokers'  Circular, 
Wth  Maroli,  1S4(). 

-  Hunkers'  Magazine,  vol.  x,  p.  44:>. 
^Journal,  Can.,  IS5it,  Appendix  no.  <)7. 


is4r-i8r)0 


i:n 


Hut  not  a  siiij^lo  cliartcrcd  bunk  fail«Ml,  spcci*'  pay- 
ments wore  maintained  throughout,  and  tin*  iosscs 
suffered  were  borne  by  the  shareliohlers  alone. 

In  IK4S  the  U'^islature  liad  passed  acts  permitting 
various  acMitions  to  th(!  capitals  of  the  Montreal, 
(Quebec  and  City  Uanks.  and  in  1S41)  to  that  of 
the  (ioie  Hank.  Additions  amounting,  in  all,  to 
t'TaO.ooo  were  authoriz(Ml,  and  In  the  latter  year 
the  time  for  paying  up  these,  as  well  jis  the  addi- 
tions i»reviously  peiinitted  to  the  Bank  (tf  Upper 
CJanada  aiul  the  Commercial  Hank,  v»'ere  extended 
to  April,  isr)2.' 

A  general  act  of  iSaO.  concerning  the  chartered 
banks,  declared  their  right  and  po\vi>r  to  take,  hold 
and  dispose  of  mortgages  and  In/pofhniiic.s  upon 
[xM'sonal  as  well  as  real  property,  by  way  of  addi- 
tional security  for  debts  contracted  to  them  in  the 
course  of  their  business.  They  were  authorized  to 
purchase  lands  or  real  estate  offered  for  sale  under 
execution  at  the  suit  of  the  bank  purchasing,  or 
exposed  for  sale  under  a  power  of  sale  given  to  the 
bank.  The  banks  might  finally  acquire  and  hold  an 
absolute  title,  either  by  release  of  the  equity  of  re- 
demption or  foreclosuie  in  the  Court  of  Chancery. 
(llUind  14  Vic,  cap.  '22.)  This  legislation  is  to  be 
explained  n(>t  as  an  extension  of  th(>  loaning  powers 
of  the  banks,  but  as  protection  to  them  against  h^ss 

'10  and  11  Vic,  cap.  115,  Provincial  Statutes  of  Canada. 
10  and  11  Vic,  caj).  114,  Prosincial  Statutes  of  Canada. 
10  and  11  Vic,  cap.  IKi,  Provincial  Statutes  of  Canada. 
12  Vic,  cap.  14'J,  Provincial  Statutes  of  ('ana<ia. 
12  Vic,  cap.  170,  Provincial  Statutes  of  Canada. 
12  Vic,  cap.  1S4,  Provincial  Statutes  of  Canada. 
12  Vic,  cap.  18.'),  Provincial  Statutes  of  Canada. 


^iLill 


1 


I; 
J  I 


132 


The  Canadian  BankiiKj  System,  1817-1890 


uron  overdue  debts.  It  is  best  understood  in  connec- 
tion witli  the  agitation  for  increased  banking  facili- 
ties, and  greater  assistance  to  tlie  less  important 
communities,  the  discussion  of  which  is  reserved  for 
the  next  chapter. 


■  t' 


CHAPTER  V 
PROVINCE    OF    CANADA.   lsnO-1807 


>J28. THE  FREK  BA\KIN(i  ACT  OF    1850' 

In  tlie  session  of  iSaO  the  Hon.  Willij 

Merritt  introduced  in  the  Legislative  A 

"to  establi.>h  Freedom  of  Banking-  in  th 

and  for  other  i)uri)oses  relative  to  Banks  and  Bank- 


Hamilton 
ssembly  a  hill 
rovince 


ing. 


The  group  of  large    chartered    banks  which   had 


liitherto  carried  on  the  bankiuir  l 


nisinoss  of  the  Cana- 


th 


ibli 


das  seemed 

equipped  with  capital.  Their  efforts,  indeed,  during 
the  eight  years  preceding  to  secure  additional  capital 
authorized  by  the  legislature,  had  met  only  a  partial 
success.  The  nt'w  banks  incorporated  in  1S41  and 
1847,  three  in  all,  had  failed  to  secure  the  capital  re- 
quired by  law  before  they  could  begin  o])erations, 
and  had  forfeited  their  charters  by  non-user.  These 
facts  were  not  considered  as  evidence  to  the  effect 
that  Canada  already  had  all  the  bankiug  investnuMits 
it  couid  attract.  (\)mplaints  of  a  lack  of  banking 
facilities  were  fr.(]uent.  and  there  was  a  widespread 
agitation  for  m  increase  of  bank  capital,  for  the  ter- 
ritorial extension  of  banking  facilities,  and  particu- 

'§s^2;!  L>7,  incluHive,  have  boen  rowritten  from  tlio  article,  "Free 
Banking;  in  Canada,"  published  in  the  Jom-unl.  of  (he  Ctinodian 
liiinkers'  Asaociation  for  IMarch,  18!l4. 


if 


Ml 


r 


|'i;| 


t  Mi 


134  The  Canadian  liankinfi  Si/sfcm,  1817-1890 


!:;i 


'  i. 


I' 


I  ill 


Vi\ 


larly  for  the  incoriioration  of  small  banks  in  the 
lesser  towns,  where  local  op])ortunities  for  accommo- 
dation were  much  desired. 

Important  safeguards  in  the  existing  system  wei-e 
the  large  capital  stocks  of  the  banks,  the  small  num- 
ber doing  business,  the  bi'oad  fields  from  which  they 
drew  their  business,  and  the  prudent  and  cautious 
manner  in  which  that  business  was.  as  a  whole,  con- 
ducted. It  was  thought  that  in  maintaining  the 
system  it  would  be  vcrv  difficult  for  the  legishiture 
to  refuse  to  incorporate  small  banks  for  the  small 
towns.  But  to  allow  such  institutions  the  import- 
ant privileges  of  the  chartered  banks,  especially  that 
of  circulating  notes  as  onh*  a  general  charge  against 
assets,  seemed  too  great  a  risk.  If  small  banks  wcrf 
to  be  established,  it  Avas  necessar}'  to  devise  sonu' 
other  i)lan  for  issuing  a  sound  currency.'  There  was 
no  bank  of  such  piedominant  position  that  to  it  alone, 
as  to  the  Hank  of  England,  the  function  of  issue 
could  be  entrusted:  after  the  failui-e  of  l^ord  Syden- 
ham's proposals  of  1841.  there  was  no  probability  of 
establishing  a  government  bank  of  issue;  and  the 
government  itself  was  in  such  pressing  financial  need 
that  any  step  towards  relief  was  welcome.'- 

Mournal,  Can.,  ISol ,  Api'endix  ]a.,  p.  I'lL',  Mfmoramlum  of  the 
Inspetitor-General  ii|on  K>  and  14  Vi<'.,  cap.  .'{1. 

-The  whole  period,  1S47  to  1S.')L',  was  one  of  severe  depression  for 
Canada,  which  had  lost,  by  tlie  free  trade  lolicy  of  <  Ireat  Uritain,  the 
advantages  enjoyed  in  the  era  of  protection.  "Threi'-*"onrths, "  it 
was  said,  "of  the  commercial  men  are  bankrupt  owin<rto  freetraile." 
They  had  been8trii>ped  of  their  jmrtial  monopoly  in  snch  commodi- 
ties as  Canada  produced.  The  per  pie  were  economically  desperate 
and  lii^'hly  susceptible  to  fomentation'  into  political  discontent.  In 
order  to  meet  just  demaids  upon  the  provint^ial  jrovernment,  for 
which  the  p-iblic  funds  were  insuHicient,  it  became  nece.ssary  in  1S4S 
to  issue  six  i)er  cent,  debentures  payable  in  one  year  after  date,  and 


I'll 


Tliv  Free  /iutikiuf/  Ac/  of  IS50 


135 


The  Banks  of  Montreal  and  British  Xortli  America 
then  (June.  1849)  (>xelusively  had  the  account  of  tlie 
government.  The  one  refused  absolutely  to  furnish 
exchange  for  flO. ()()(>  on  the  three  nv^nths'  note  of 
the  Receiv(n-  (leneral,  to  meet  interest  payments  in 
England;  the  other,  in  respect  tt>  a  similai-  sum.  at 
first  demanded  collateral  security,  and  finally  also 
refused.  But  when  the  specie,  come  by  lucky  chance 
into  tlie  government  chest,  was  produced,  both  banks 
found  the  recjuired  exchange.' 

Already,  in  l^'.W.  it  had  bt>en  proposed  to  establish 
a  "System  of  banking  founded  upon  ca])ital  invested 
in  i)ei-manent  securities,  and  limited  according  to 
amount  of  capital  stock  so  invested."'  The  plan 
was  then  rejected  as  --too  difficult  in  the  present 
state  of  the  Province.'"-  Canadians  in  the  meanwhile 
had  noticed  the  evils  sustained  by  the  public  of  the 
United  States  fi-om  systems  of  banking  which  re- 
sembled their  own,  in  so  far  as  they  were  chartered 
systems.  More  i)articularly  had  they  observed  the 
banking  legislation  of  New  York.  Thus  Mr.  Fran- 
cis Hincks.  while  advocating  in  1S:}8  a  general  bank- 
ing law,  commented  upon  the  recommendation  con- 
tained in  the  last  message  of  the  governor,  and  en- 
deavored to  show  an  analogy  between  the  situation 
there  and  in  Canada.  The  ''free  banking""  law  of 
New  York  had  been  in  force  since  ISIJS.  After  a 
costly  experience,  the  statute  had  been  so  altered 
and  amended  that  in  ISHO,  with  only  United  States 

for  sunisa.s  low  as$l(»  (C2  lOs.).  (IL*  Vic,  cap.  ■").)  At  the  time,  of 
oourse,  these  were  negotiable  only  under  par. 

'  Viih  "Hemini.scences.  etc.,"  Ilincks,  pp.  1S8,  1!I7,  and  Journal, 
Can,,  1S54,  Appendix  Ee. 

-Journal,  T^  C,  is:!l.  Appendix,  p.  '-'<»1,  I'd  report  of  Select  Com- 
mittee on  Currency. 


\     f 


M 

'I  I 


I  \ 


i  i 


i;jr,  T/iP  Canitilian  /Jtiukinr/  Si/stem,  1817-1800 

or  New  York  securities  receivable  on  (lei)osit  with 
the  state,  witli  a,  system  of  iiuniediate  note  redemp- 
tion, with  eacli  bank  confined  to  a  sinj;le  i)lace  and 
ol)liji^ed  to  exercise  tliere  the  discount  and  <U4K)sit,  as 
well  as  issue  functions,  and  with  the  stockholders 
subjected  to  double  lial)ility.  it  presented  a  carefully 
wrought  out  system  of  banking  law. 

The  commercial  relations  between  the  Upper  Prov- 
ince and  New  York  had  long  been  closs  and  imi)or- 
tant.  When  the  economic  conditions  of  the  two 
countries  were  compared.  New  York,  no  doubt, 
appeared  to  marked  advantage.  The  legislation  of 
New  York,  theiefore.  was  not  unlikely  to  be  regarded 
by  Canadians  as  recommended  by  the  success,  pros- 
perity and  credit  of  the  state  in  which  it  was  in 
force.  Its  influence  was  not  necessarily  the  weaker 
because  the  judgment  as  to  results  was  not  entirely 
logical.  The  emphatic  adherence  given  to  free  bank- 
ing' by  Millard  Fillmore,  as  comptroller  of  the  state 
for  1841),  was  followed  by  the  adoption  of  laws  drawn 
on  the  New  York  model  in  ^Massachusetts,  Ohio.  Ver- 
mont, Wisconsin,  and  other  American  states.^  Cana- 
dians also  remarked  that  the  system  had  worked  sat- 
isfactorily and  that  its  effect  had  been  to  raise  the 
value  of  i)ublic  securities  very  materially. ' 

They  overlooked  the  fact  that  in  New  York  the  free 
banking  sj'stem  had  been  established  primarily  as  (a) 
an  escape  from  the  complete  monopol}'  of  banking, 
discount  and  deposit,  as  well  as  issue,  conferred  upon 


'Report  of  tlie  Comptroller  of  the  State  of  New  York,  1S4!),  pp. 

•")."),   0(). 

-Report  of  the  Comptroller  of  the  Currency.  Washington,  lS7(t,  p. 
'Journal,  Canada,  18")!,  nl  sujira. 


li 


The  Free  Hank  inn  -'''''  'V'1850 


137 


tlie  chartered  banks  in  1818,  and  [b)  a  remedy  for  tlie 
shameless,  corrupt  and  unendurable  practice  of 
regarding  bank  cliarters  as  spoils  for  tlie  victorious 
l)arty  to  deal  out  as  rewards  for  partisan  services.' 
The  chartered  banks  of  Canada,  on  the  other  hand, 
enjoyed  no  exclusive  privilege  save  in  the  function 
of  issue.  Even  in  that  there  was  abundant  competi- 
tion. Nor  was  there  thei\  the  susi)icion  even  of  cor- 
ruption or  partisanship  in  the  distribution  of  bank 
chartei's.  But  in  spite  of  the  lack  of  analogous  con- 
ditions, in  spite  of  the  facts  that  twenty-nine  New 
York  banks  liad  failed  in  the  first  five  years  of  the 
law's  operation,  and  that  the  special  deposits  of  secu- 
rities realized  but  74  per  cent,  of  the  defaulted  notes, - 
Mr.  Merritt's  bill  was  modelled  aft(  the  free  bank- 
ing laws  of  New  York.  Its  objects  are  sufficiently 
described  as  (a)  to  provide  for  the  establishment  of 
small  banks,  (h)  properly  to  secure  their  circulati<m, 
(c)  to  relieve,  in  part  at  least,  the  financial  difficulties 
of  the  govei-nment  by  widening  the  market  for  its 
securities,  and  at  the  same  time  so  stimulating  the 
demand  as  to  raise  their  value. 

The  measure  as  passed  (13  &  14  Vic,  cap.  '21)  first 
repealed  the  old  laws  of  Lower  Canada  (Ord.  L.C.  2 
Vic.  (:}).  cap.  57),  '-to  regulate  private  banking  and 
the  circulation  of  the  notes  of  private  bankers,"  and 
of  Upper  Canada  (7  Wm.  IV.  cap.  IH),  ••  to  protect 
the  public  against  injury  from  private  banks." 
Henceforth  it  became  lawful  only  for  chartered  banks 
or  other  corporations  or  persons  authorized  under  the 
new  act  to  issue  circulating  notes,  which  were  to  be 
of  the  value  of  five  shillings  or  over.     Notes   under 

'Comptroller's  Report,  N.  Y.,  1.S4'.),  p.  54. 

■Report  of  the  Comptroller  of  the  Currency,  1S7(),  p.  2:\. 


H 


jt    '1 

•1I 


i^ 


% 


1 


# 


Un 


If 


i;}8  The  CanuiliitH  liankin(j  Si/s/eiii,  1817-1890 

five  shillings  were  prohibited.  So  also  circulation  by 
unauthorized  jtersons  was  forbidden  on  pennlty  of 
tines  of   ti<>(). 

The  si^iiiticant  provision  of  the  act  is  the  extension 
of  the  privilege  of  note  issue  '"to  other  jK'rsons  or 
corporations  thereunto  authorized  as  ]>rovided  for 
herein."  Individuals  or  general  partners  might 
establish  banks,  or  joint  stock  coni]>anies  might  be 
f(»rme(l  to  carry  on  the  business,  but  in  any  case  the 
bank  was?  to  have  an  office  in  but  one  ])lace.  and  in 
but  one  city,  town  or  village.  Of  tlu'  comi)anies  was 
r'Mpiired  a  minimum  capital  stock  of  fio, ()()().  divided 
into  shares  of  I' 10  or  more.  Articles  of  agreement 
in  notaiial  form,  showing  the  name,  place  of  busi- 
ness, capital  stock,  number  of  shares,  mimes  and 
residences  of  the  shareholders  and  the  time  when  tlie 
company  should  begin  and  end.  were  the  legal  basis 
for  organization.  After  the  articles  were  duly  tiU'd 
in  stipulated  courts  of  record,  the  companies  became 
incorporated,  anil  the  liabilities  of  the  shareholders 
limited  U>  double  the  amount  of  their  subscribed 
stock.  The  total  liabilities  of  a  joint  stock  bank 
were  not  allowed  to  exceed  three  times  its  capital 
stock.  F^very  institution  working  under  the  act  was 
requii'ed  to  keep  bona  Jide  an  office  of  discount  and 
deposit,  at  all  times  to  keep  exposed  in  its  place  of 
business  a  list  of  its  i)artners  or  shareholders,  and  to 
make  detailed  semi-annual  returns  to  the  Inspector- 
General,  as  well  as  to  submit  to  official  insi»ection  at 
the  discretion  of  the  government. 

In  order  to  issue  notes  the  banks  thus  fornu'd  were 
each  obliged  to  deposit  with  the  Receiver  General 
provincial  securities  for  not  less  than  i't?'), ()(»(>  cur- 
rency    (Sl  ()().(»()(»),     i)ar    value,     in     pledge    for    the 


Tho  Frer  lUinkinf)  Art  of  1850 


,'}9 


redemption  of  tlieir    notes.       Interest  on    tlie  secnr- 
ities  wtis  to  be  paid  to  the  depositor  as  it  aecrned, 
and    against    the   bonds   tlie    Receiver  (Jeneral    was 
anthorized  to  deliver  to  the  banlc  an  equal  amount 
of  registered  notes,  printed  from  plates  furnished  by 
the  bank,  upon  i)aper  selected  by  the  Receiver  (Jen- 
eral.     AVhen  signed  by  the  proper  officer  these  notes 
were  to  become  notes  of  the   bank.      In  every  eas(> 
tliey  were  to  be  payable  in  specie,  on  demand,  at  the 
bank's  place  of  business.     They  were  to  be  marked: 
''Secured  by  provincial   securities  deposited  with  the 
Receiver  General, '"  and  were  to  be  receivable  for  all 
duties  and  sums  due  to  the  provincial  government, 
so    long    as    the   issuing    bank    redeemed    its    notes. 
These  registered   notes  were  exempt   from   the   i'at<' 
of  one  ])er  cent,  per  annum  levied  upon  tlie  average 
monthly    circulation  of  the   chartered    banks.      The 
third  oi-  fiscal  object  of  the  act  is  especially^ jtlain  in 
that    clause  which    permits  the  chaitered   banks  to 
surrender  tluMr  right  of  circulation  against   assets. 
and  to  secure  from  the   Receiver  (ileneral   registei-ed 
notes  in   retui-n  for  deposits  of  securities.      Any  of 
the  corporations  within  the  purview  of  the  act  might 
deposit  additional  securities  from  time  to  time,  aiul 
withdraw   sums   of  not    less    than    tT). ()()().    provided 
that  like  amounts  of  the  n<;tes  were  returned  to  the 
Receiver  General  and  the  required  deposit  of  riH. ()()() 
maintained. 

If.  in  case  of  suspension  of  specie  ])ayment  and 
protest  of  tlie  notes,  the  paper  was  not  paid  with 
interest  at  six  per  cent,  within  ten  days  after  the 
rtquisition  issued  by  the  Inspector  (ieneral  of  the 
province  upon  receipt  of  the  protested  notes,  that 
officer   was  commanded  to  close  the   institution  and 


fi 

ll 

i  »^ 

ill 

f.i 

I      |i 

^: 

|i 

f  1 


i' 


n 


140 


Thr  Cdundian  lianhin;!  Sii^lom,  18i;-1890 


hi  ' 


ll   I 


?! 


wind  lip  its  affairs,  should  it  have  no  valid  oxcuso 
to  offer  for  the  default.  The  proeess  of  liquidation 
was  to  be  completed  by  a  receiver  appointed  by  the 
Receiver  General.  His  duty  was,  //r,s7,  to  pay  off  the 
notes  from  the  proceeds  of  the  securities  on  dei)osit. 
The  remainin;!^  proceeds  were  then  to  be  applied,  with 
the  other  assets,  to  settlement  of  the  remaining  debts 
of  the  bank.  But  if  insufficient  funds  were  realized 
from  the  sale  of  the  securities,  the  general  assets  of 
the  bank  were  to  be  applied  to  the  payment  of  the 
notes  before  the}'  were  used  for  the  other  claims. 
This  is  the  first  appearance  in  Canadian  legislation 
of  that  principle  of  making  bank  notes  a  preferred 
claim,  which,  thirty  years  later,  was  embodied  in  the 
Bank  Act  of  the  Dominion. 


^•i4 AMKNDMKNTS  AN1»  SUPPLEMENTARY  MEASURES 

The  "Act  to  Establish  Freedom  of  Banking"  could 
hardly  be  called  perfect.  Time  proved  it  ill-calcu- 
lated to  promote  the  ends  of  the  legislature  which 
passed  it.  The  amendments  passed  in  the  fol- 
lowing years  show  that  certain  of  its  defects  were 
recognized.  From  the  very  first  it  suffered  severe 
criticism  on  the  part  of  the  English  Lords  of  the 
Treasury.  The  most  serious  defect  of  the  act,  in 
their  opinion,  was  the  lack  of  guarantee  for  the 
immediate  convertibility  of  the  notes  on  demand. 
Against  the  fancied  completeness  of  government 
obligations  as  "security."  they  cite  the  fall  of  the 
Exchequer  bills  to  35  shillings  discount  in  1847. 
Anxious  as  always  that  the  financial  and  monetary 
systems  of  the  colonies  should  be  sound,  they  warn 
the  Canadian  government  against  the  reverses  fol- 


Aincnihnnifs  and  Supplementury  Medsures  141 

lowing  too  <,n-eut  an  extension  of  the  facilities  which 
may  he  afforded  hy  the  use  of  i»ai>er  money.  The 
measure  miglit  cause  Canadian  securities  to  rise 
temporarily,  hut  they  would  also  he  exposed  to  the 
risk  of  depreciation  should  it  hecome  necessary  to 
throw  them  into  the  market  in  order  to  provide  for 
the  payment  of  hank  notes.  In  the  o]»inion  of  the 
Lords  of  the  Treasury,  the  j^reat  protection  against 
over-issue  was  the  constant  maintenance  of  a  pro- 
portionate reserve  of  specie  against  the  outstanding 
circulation,  with  government  supervision  and  fre- 
quent puhlication  of  hank  statements.  They  recom- 
mended the  requirement  of  a  specie  reserve  of  one- 
third  of  the  notes  issued,  and  of  monthly  statements." 

The  following  year,  accordingly,  an  amendment 
was  i)assed  requiring  monthly  statenuMits  from  the 
free  hanks.  (14  and  1.')  Vic.  cap.  fill. )  It  is  plain 
that  half-yearly  returns  provided  a  l)asis  for  intelli- 
gent criticism  to  neither  the  government  nor  the 
puhlic.  The  period  of  one  year  in  which  to  retire 
their  circulation  and  hegin  operations  under  the  new 
l>lan.  accorded  hy  the  act  of  1S.")0  to  i)anks  or  compa- 
nies whose  authority  to  issue  notes  had  heen  with- 
drawn, was  increased  to  five  years,  provided  that  in 
each  year  of  tlu^  next  four  they  should  retire  oiu'- 
fourth  of  the  average  circulation,  during  IS.'O.  of 
notes  not  secured  hy  a  (lei)osit  of  honds.  The  re- 
quirement of  a  specie  reserve  of  one-tliird  was  not 
adopted. 

In  the  same  session,  the  Assemhly  passed  anothei' 
act  with  a  view  ••  to  encourage  the  chartered  hanks 
to  adopt  as  fai-  as  conveniently  practicahle.  tin-  ])rin- 

-Journal,  Canada,  18">l,  Ai)pen(lix- Li.,  Letter  of  C   K.  Trcvclyiui. 
.Tune  11,  18.")i. 


'  « 


■If 


»    ' 


IB 


1 


14: 


Tlw  ('(tntiffian  nankiny  Sifstrm,  1817-1890 


ciples  of  tlio  OeiKjral  Banking  Act  in  regard  to  tlu; 
sccui'ing  of  tlu'  rodeniption  of  their  hank  notes." 
(  I4nn(l  15  Vic,  caj).  70.)  The  real  i)iiri)os(',  of  course, 
was  a  furtlicr  sale  of  honds.  The  means  were  («)  a 
remission  during  tiie  next  tliree  years  of  one-half  tlie 
tax  on  circukition  to  those  hanks  willing  forthwith 
to  restrict  their  circulation  to  the  highest  iunount 
shown  in  the  last  statement,  and  at  the  end  of  three 
years  to  three-fourths  of  the  average  for  LS41)  and 
!iSr)0;  {!))  at  the  end  of  the  three  years,  entire  ex- 
emption from  the  tax  to  hanks  with  note  circulation 
thus  I'estricted  ;  (c)  jiermissiou  to  such  hanks  to  issue 
in  excess  of  tlie  restricted  circulation  furthei'  notes 
to  the  amount  they  should  hold  of  gold  or  silvei'  coin 
or  hullion.  or  deheutures  of  any  kiiul  issued  hy  the 
Receiver  tJeneral,  the  vahu'  of  such  securities  to  he 
reckoned  at  par  :  (d)  exemption  of  these  hanks  from 
the  re(iuirement  to  deposit  the  deheutures  and  to 
secure  registered  notes.  But  if  failui'es  occurred  the 
proceeds  of  honds  thus  iield  hy  the  hanks  were  to  he 
ajiplied  exclusively  to  the  redem])tion  of  outstanding 
notes.  Finally,  the  act  imposed  upon  the  chartered 
hanks  the  ohligation  to  return  monthly,  instead  of 
half-yearly,  statements  of  assets  and  liahilities. 

The  act  of  10  Vic,  cap.  62  (session  of  ISn*^),  was 
an  attempt  further  "to  encourage  the  issue  hy  the 
chartered  hanks  of  notes  secured"  in  this  manner. 
They  were  permitted  to  issue  notes  in  excess  of  the 
limit  laid  down  by  their  charters,  /.  e.,  the  amount  of 
their  i)aid-up  capital  stock,  to  the  amount  of  the  sums 
held  hy  them  in  specie  or  debentures  receivable  in 
deposit  by  the  Receiver  General,  although  the  deposit 
of  the  securities  was  not  required.  The  1  per  cent, 
tax  upon  circulation,  also,  was  to  be  calculated  only 


Aiiii'udiiivtds  (t)id  Supphiiionhti'ii  Miasnrfs  \\\\ 

\\\)un    the    sum    by   wliicli    the    avt'rage  during  any 
jxTiod  of  the   oiitstaiKlin^   notes   of  a   l)ank   should 


exceed  the  average  ot  tlie  securities  and  specie  which 
the  l)ank  liad  on  hand. 

For  these  suppU-nientary  measures,  tlie  only  analogy 
in  New  York  legislation  is  the  law  of  1840,  which 
permitted  the  Safety  Fund  hanks  to  continue  their 
business  after  the  expiry  of  their  charters,  on  con- 
dition that  they  should  deposit  si-curities  with  the 
comptroller  and  reorganize  under  the  general  hank- 
ing law.'  The  Canadian  measures,  however,  seem 
strongly  to  retlect  the  influence  upon  the  legislature 
of  Sir  Robert  Peel's  Bank  Act  of  1844.  and  the 
statutes  of  184.").  which  dealt  with  the  Scotch  and 
Irish  banks.  The  i)lan  of  restricting  that  part  of  the 
circulation  -'unprotected"  by  special  security,  the 
extension  to  the  banks  of  the  privilege  of  indefinitely 
increasing  circulation  beyond  that  limit,  provided 
equivalent  values  in  specie  or  debentures  were  held, 
and  the  re^  eated  efforts  to  provide  as  much  as  possi- 
ble of  the  fiduciary  currency  with  bond  security,  are 
not.  to  be  sure,  conclusive  evidence  of  this  influence. 
Such  regulations  might  have  been  adopted  after  inde- 
pendent consideration,  or  to  reach  other  ends  than 
those  sought  by  Lord  ')verstoiie.  Sir  Robert  Peel  and 
their  followers.  In  Canada  too  the  financial  purpose, 
though  the  laws  failed  to  afford  the  anticipated  help, 
was  highly  influential. - 

But  the  inference  that  the  English  example  was 
followed  is  greatly  strengthened  when  we  revert  to 
the    position    of    :\[r.    Francis    Hincks    as    Inspector 

'Bank  Statietics,  lS4l)-.-)(),  ;!l8t  Congress,  first  Session,  IF.  K.  Execu- 
tive Documents,  no.  68,  p.  ]:>2. 

-Journal,  Can.,  1851,  pp,  209  and  210. 


I 


ii^i 


1* 


■,  ■; 


144  The  Coitiidiiin  Ji(itdin;/  Si/s/nti,  1817-1800 

(i«'n«>rnl  at  this  time  and  lacnilxT  of  tli«'  KxccMitive 
('(tuacil,  and  t»»  the  iiiMuciu'i!  lie  enjoyed  in  the  liC^is- 
lative  Asseiiii)ly,  Ten  years  hefoi'e  he  had  supported 
the  pi'oposals  of  Lord  Sydenham  to  regulate  tlie 
Canadian  note  circulation  hy  means  simihir  to  those 
su^^fested  hy  Lord  Ovorstone.'  He  wrote  an  ener- 
getic defence  of  Peel's  Hank  Act  in  1847.-  As  late 
as  lS7<t  his  views  were  unchangecL'  Mr.  Hincks.  as 
one  of  th(^  leaders  of  the  {.government,  was  chietly 
responsihie  foi'  the  legislation  of  ISol-lS,"):}.^  The 
inference  is  practically  coutirmed  hy  the  fact  that  in 
.lune,  1S.")1,  the  Colonial  Dlfice  itself  advised  the 
Canadians  to  adopt,  as  far  as  possihie.  the  pi'inciples 
of  Peel's  Jiank  Art  in  their  regulation  of  hanking- 
and  currency.  In  Sir  C  K.  Trevelyan's  letter  foi- the 
Lords  of  the  Treasury,  transmitted  throuj^h  Downing 
stre«'t.  it  is  rt'marked:  "Although  tlu^  estahlishment 
of  a  hank  in  connection  with  the  government  appears 
to  have  heen  impracticahle  or  inexpedient,  it  doc 
not  follow^  that  some  moditlcation  of  the  scheme 
adopted  in  the  Cnited  Kingdom  with  resjtect  to  the 
circulation,  tlu;  leading  feature  of  which  is  a  limita- 
tion to  the  amount  of  notes  issued  on  the  credit  of 
secuiities.  and  the  maint<Miance  of  a  deposit  of  sjtecie 
('(jual  to  all  issues  exceeding  that  amount,  might  not 
still  he  attainahle  in  Canada."'  The  authority  of 
the  ottlcials  in  Downing  street  and  the  pi'omi)tness 
with  \vhi(di  their  recommendations  were  usually 
carried  out   in  the   province   leave   no  douht    of  the 

'  "Reminiscences  of  his  Pnblic  Life,"  by  Sir  Francis  Ilinciis,  p.  fi!i. 

-Montreal  Pilot,  -J'M  October,  1S47. 

'Piiriianientary  Debates  of  tlie  Poniinion  of  Canada,  vol.  i,  p.  2U>. 

JJournal,  Canada,  ls.")l,  j).  L'Oii;  is."):;,  p.  1040. 

'■Journal,  Canada,  is.")l,  Appendix  Li.. 


T 


II 


Fniills  of  the  Si/sffni 


145 


inark<'(l  etVcct   tif  this  factor  on   tin*  sui)j)h'iiu'iitjiry 
It'gisliition  ill  regard  to  "frt'cdoin  of  hanking. "" 


^     \l 


r^^K 


KAl'LTS    OK    TIIK    SYSTKM 


The  possihlf  ihmgcrs  oi-  faults  of  tlic  original  act. 
pointed  out  for  the  Loids  of  the  Treasury  in  the  same 
hotter,  and  noted  by  us  on  a  preceding  page,  wt're 
not,  on  the  whole,  the  source  of  much  trouble  in  the 
Working  of  the  system.  N'ery  few  hanks,  in  fact, 
began  operations  under  the  law.  The  system  of 
chartered  banks  remained  predominant  and  charac- 
teristic. The  obstacles  to  a  thorough  trial  of  the 
so-called  "free  banking""  were,  first,  the  diminution 
rather  than  increase  of  l)anking  facilities  which  its 
introduction  would  have  bi-ought  about,  and.  second, 
the  inferior  opportunity  whicli  it  ofi'ered  for  banking 
pi'otits.  The  obsta(des  will  be  examined  in  tluiir 
order. 

The  bonds  receivable  on  (h'posit  as  note  security 
bore  interest  at  6  i)er  cent.  'Vho  minimum  dei)Osit 
for  a  bank  begimiing  business  was  t'^a.OOO  cui-rency. 
or  ^l()(),0(M).  The  small  banks,  however,  which  it 
was  expected  to  establish  undei'  the  act.  wt)uld 
sel(U)m  need  a  capital  greater  than  i:2.").()0(>.  and.  even 
if  they  needed  it,  a  greater  sum  would  be  hard  to 
get  in  tlie  localities  whence  the  demand  for  such 
institutions  came.  But  before  a  bank  could  begin 
business  this  hardly-gained  cajtital  was  to  be  re- 
moved from  the  locality  and  locked  uj)  in  debentures. 
In  return  for  these,  the  free  bank  was  to  receive  an 
ei^uivalent  amount  in  registered  circulating  notes, 
A  chartered  bank,  on  the  other  hand,  ac(piired  by 
the  privilege  of  circulation  a  power  of  loaning  to  the 
10 


'    I 


'I 


I 


i 


146 


'/'//('  Cktnadian  liankinn  Sijstoii,  1817-1800 


community,     in    addition   to   its    capital    stock,     the 

ammmt  of  its  authorized  note  issue.     To  nu-et   the 

needs   of    its   district    the   fi'ee   hank    in  oui*  e.xamjtle 

was  to  (U'rive  from  capital  and  circulation   combined 

a  fund  of  only  l'2.").(i(»(>.  /.  c.  the  nmoiiMt  .>i"  its  note 

issue,    or  rather  so   nuudi    of   it  as  couhl   l)e  ke]>t  in 

circulation,  a  proi)ortion  which  rarely  I'enched  '.»()  per 

cent.,  and  m  some  cases  did  not  exceed  ;")•>  per  <'ent. 

In  hi'ief.   L-i."».(i(i(l  of  the  cai»itai  of  the  district    was  to 

he  taken  itodijy  away  and  replaced  hy  notes,  of  whi(di 

only  a  pai't  wei-e  availahh>  for  loaning-  ]>ui'poses.      If 

carried  out.  the  sclu'nie  to  jirovide  hankiii};-  facilities 

for  i)oor  communities  was  di'stined  actually  to  dimin- 

isli  the  loanahle  funds  in  the  district  for  wiiose  benefit 

it  was  devised.' 

Intinuitely   connected    with   this   fault   is  the  fatal 

defect   of   the  act — the   sliiiht   inducenu'ut   to  invest- 

nuMit   affordt'd   by    its   provisions.      With    its  capital 

locked  up  in  debentures  then'    i-emained   to   the   fi'ee 

bank,    besides  its   deposits,    which    need    not  be  con- 

sidi'red    here,    the     fi.'j.OdO    of    registered    notes    for 

accomuioilation    of    the    local    public.     ( )f  these,  we 

have  seen  that  only  Ho  to  •.)(»  percent,  const  ituted  the 

actual    loauinj^    fund    whicdi    could    be    turned    ovei' 

several  times  a  year  in  bankini.^  operations,  and  from 

whi(di  could  be  derived  the  additional  and  incidental 

pi'oHts  that  banks,  in  spite  of  usui-y   laws  and  othei- 

'Cf.  the  reiuiirks  uf  Wasliiiijjton  limit  in  an  olliciul  li'tter  I'rnni 
tlie  ollice  of  the  ('i)nM>t roller  of  Nt-w  York.  (lat«'<l  1st  May,  jstn, 
"Tlu'  tendency  of  the  ihan<:e  nrmn  the  Safety  Fnnd  sy.stein  to  Free 
Hankinjr)  is  to  diniinish  niateiially  the  hankin<r  facilities  en  jnyed  hy 
the  coinniiinity.  To  the  extent  thai  theehartered  hanks  are  reiinireil 
to  transform  their  present  capital  into  permanent  securities  as  a 
pledjre  for  the  redemption  of  their  hills,  they  mnst  deprive  thein- 
selvi's  of  the  means  now  employed  in  tic:  ie>:nlar  operations  of 
hankinu'."     t^iioted  in  I'.ank  Statistics  iit  .suprti,  p.  IIJ!). 


.    I 


J    \ 


'r.     )] 


Judi/fa  of  thn.  S\i/s/o>ii 


IIT 


hiiidraiicos.  will  (•(sntrivf  to  secure  whenever  the 
nuii'kcts  permit.  From  an  e([ual  sum  invested  in  one 
of  the  chartered  banks  could  he  j,^ained  the  banking 
profit  on  tlie  cajiital  itself,  and  the  circulation  issued 
upon  tile  credit  of  that  cai)ital.  The  advanta>;e  in 
favor  of  the  chartered  bank,  apart  frt>ni  the  impor- 
tant consideration  of  its  control  of  much  larger 
means — none  of  its  cai)ital  being  locked  up  in  de- 
bentui'es — was  approximately  the  difference  Ix'tween 
the  banking  profit  on  the  amount  of  its  capital  and 
the  interest  on  an  I'ipial  amount  invested  in  govern- 
ment securities.  In  other  woids.  the  chartered  bank 
would  get  the  greater  return  from  both  circulation 
and  cai)ital  :  the  free  l)ank  from  circulation  alone, 
its  capital  being  invested,  by  law.  at  a  loui-r  rate  of 
interest. 

This  higher  gain  to  i)e  ha<l  friun  employing  their 
funds  in  their  own  business  also  caused  the  (duirtered 
banks,  as  ;•  rule,  to  reject  the  encouragement  offered 
by  the  legislature  so  to  invest  those  funds  in  deben- 
tures as  to  nuike  them  practically  a  permanent  loan 
to  the  government.  And  in  a  country  whei'e  the  best 
Itank  pi'otits  wcic  moderate,  other  investors  were  slow 
and  unwilling  to  engage  in  a  form  of  banking  in 
which  the  t'hances  foi-  gain  wen-  still  more  restricted.' 

'Cr.  (HI  tills  pniut,  the  iviMiirks  nt  Mr.  Mnritt.  ( lu-  :nitliur  nf  tin- 
l>ill.  c.ii  the  4th  Miirch,  IsMi,  in  tin-  bcirishitivr  Asscrnl-ly.  "  TIk- 
cause  wliy  the  Inuiks  liavi- nut  siifcocih-il  ini>i.r  tlic  !■  M'c  I'.aiikiiii: 
Act  was  heciv  se  his  (tiie  minister  s)  iircii<'<Tss(irs  ha^l  al'aMiioniMl 
the  i)olicy  tiiey  liad  cunum-nrccl.  *  »  *  Why  .lid  imt  othci 
l)ankiii>r  cmipiinics  seek  charters  under  the  Free  iiankin^'  Act? 
Siniply  ljecaii''o  tlioy  made  inure  iihuiey  under  the  nld  sysU'iu." 


'J       t' 


il    ' 


i  H 


A:' 
<■■  I 


I  m 


f 


11 


r 


148  The  ('(imididn  Hankimj  System,  1817-1890 

^26. —STATISTICAL    VIEW    OF    THE    FKEE    HANKS 

Ainon^-  the  chartered  banks  the  Bank  of  British 
North  America  alone  appears  in  the  statements  pub- 
lished accordin^r  to  the  free  banking  laws.     A  sup- 
plementary charter  enabled  it  to  enjoy  under  these 
enactments  a  valuable  privilege  withheld   from  it  by 
the  original  royal  charter,  but  exercised  by  the  otheV 
banks  under  their  colonial  cliarters  since  the  time  of 
the  first  incori)oration.     This  was  the  right  to  issue 
notes  for  less  than  four  dollars.      Until  the  banks  sur- 
rendered their  small  note  issue  in  hSTO,  the    British 
Bank  appears  to  have  continued  its  issues  under  this 
act.     At  the   close  of  18.04   three   other   banks  were 
doing    business    under    the   act.       Following   is   the 
return:' 


Itntish      .Mols.ms'      District  niiin 

•Noitli         Hunk,       Hank,  St.      itaiik. 

Ainurica    Montreal  Cittb'riiics   Clintcn 


'I'otal 


(-  apital    in     I'rovincial 

iJebentiireH  dejmsited 

witli     the    Keceiver- 

Genenil I (i2, 1 lTi 

Amount    of    retristcred 

notes  oulstHndi  nj;  and : 

delivered  totlie  l)ankfsi 

bythelnspector-tien- 

..^•"^l--. i^:!,7o(. 

Circulation    

Liabilitieis,       including, 

circulation i 

Assets ! 


.")(!.  (MM) 

;!7,S(;] 

S5,44(i 
i;i(), 8-1(1 


X. 


.€ 


50,OOU  ^    .")(),0UO       i>.-),(Mi(i    i.'S7,li'.-, 


49,!i!t!»  I 

-l(i,  Kilt  j 


LM.-".(J0 
L'2,00(i 


•11W1A\> 


<i7,(ii.")      L".i,;j"i 
10 1, (142       4'.t,y;!l 


'riihlic  Accounts,  Province  of  Canada,  Ks:)4,  p.  I'l':.. 


Stdtislical  View  of  the  Free  Bankx 


149 


Tlic  in'xt  year  operations  reaclu'd  the  lii;;hest  figure 
in  the  whole  history,  though  only  four  hanks  aiipear 
in  tlie  statement.' 


Itiinkot'  Niiiuani      /.liiini«'r- 

H.  N.       Molsipiis"      I)i-tri('t  riiiiii  Tiitiil 

.\iucrica        Hunk  lliink  Hank 


Ciipital     in     Provincial  ] 
Debentures  deposited 
with     tlie    Receiver- 
General l7n,70S;    50,000 

Rejiistereil     notes    out 
standinjr |ii!t,7">0 

C'irculatiiMi 

Liabilities 

Assets 


on, (100      40,0(10    :'>10,708 


49,704      4!>,901t       40,oOO    ;?n!),r)^!t 

•-'4,:;;'.2  (W.ooo-  40,000 
i.'4,:'.;;l'  77,701   48,si7 ; 


70,100  I :;;•,, L's.-)  54,r)8r) 


After  1805  there  was  a  steady  falling-  off  in  the 
amount  of  securities  (U'posited.  notes  outstanding 
against  them,  and  notes  in  circulation.  In  tlie  state- 
ment of  ISoH  the  Provincial  Bank  and  the  Hank  of 
the  County  of  Elgin  first  appear,  the  former  with  ji 
deposit  of  securities  for  s|*i(>,(>(K)  and  notes  for  the 
same  amount,  tlie  latter  with  securities  for  8IOO,(»0(» 
and  notes  for  S71),9.')().  The  Molsons".  Niagara  Dis- 
trict and  Zimmerman  hanks,  which  were  chartered 
in  1S5."),  appear  to  have  heeii  retii'ing  their  secured 
notes.  The  total  hond  deposits  are  sl.ll4,r)3;}.;^S 
(fiTS.onS).  and  notes  outstan<ling  $l,OS(».f584  (t"J7»).- 
171).'  In  IS.")?  the  figures  have  fallen  to  .^77(),:nt).3M 
and  .s7()!).73<».'  in  lsr)S  they  are  s7:5<». ;")():!.:{:{  and 
$729,r)'{l.  and  the  Molsons"  and  Zimmei'inan  hiinks 
disajipeai'  from  the  list.  In  IS.")'.)  the  hond  dei»os!ts 
are  S730..")(»:{.;5:{  and   not«'s  outstanding,  .s(')t)'.)..">:?| :  in 

'  I'uhlic!  Accounts,  Province  of  ("aiiinia,  IS'i'i,  ii.  -•>!. 

-Also  issues  under  charter. 

'Ibid,  ISoB,  p.  'I'M. 

*lbid,  1S.')7,  part  ii,  pp.  04,  0.">. 


t' 


%i^ 


ml 


f 


\t] 


f 


150 


Thr  CinuidUiii  />'<nd-i>i;/  Si/s/cn,  1817-1890 


I    '  ■>, 


IS<)(>.  )55(52,0();}.;{3  and  s4l>r).():n,  of  wliicli  the  British 
Bank  stands  for  s44(i.9MM.:iM  and  sHTIJ.DIU.  about 
)^] (10, 000  less  than  in  the  statements  for  1857  to 
18.00.' 

Bv  Deoenihei-.  IS(5I.  tlie  Niat-ai-a  District  Bank 
had  nearly  withdrawn  its  pi-ovincial  seeurities,  and 
the  Provincial  and  County  of  Kl.nin  hanks  had  only 
$2,000  an<l  .s-i0.440  of  bonds.  res]»ectively.  on  de])osit.- 
At  the  end  of  I.S()"J  the  British  i^.ank  held  securities  foi- 
>>4'J<>, *.):{;}. :}:5:  its  registered  notes  amounted  to  s:};J6,- 
1)(54,  of  whicli  si;}O.r)0r)  were  in  circulation.'  But  the 
Provincial  Bank  hail  deposits  and  circulation  of  only 
sO,7:2!>.  and  the  Bank  of  the  County  of  Elgin  had 
disa])i>eared  both  from  the  government  statement 
and  the  world  of  business.  T-  all  intents  and  pur- 
poses, free  banking  in  Canada  had  run  its  course. 


S*J7 — KKI'EAL  OK  THK  ACT  To  KSTAHMSH  KHEKOOM 
()P  HANKIN(i.  AM)  lUSAri'EAKANCE  OF  TIIK  HANKS 
OR(iANlZEI)  INDEH  IT 

The  failure  of  the  system  had  i-eceived  the  atten- 
tion of  the  Legislative  Assembly  at  least  five  years 
before.  On  March  (5.  1857.  the  Hon.  William  Cayley 
introduced  a  bill  to  discontinue  the  incorporation  of 
joint-stock  banks  and  the  issue  of  registeix'd  notes. 
The  merchants  and  monied  men  of  the  province  were 
generally  in  favor  of  the  old  chartered  system,  he 
said,  and  even  in  K^,");").  the  Assembly  had  decided 
to  perpetuate  it.  Its  decidi'd  superiority  had  been 
shown  by  the  action  of   the   three   banks  which  had 

'Public  Accounts,  Province  of  Canada,  isdd,  part  ii,  p.  ss. 
-Ibid,  ISdl,  part  ii,  \>,  !M. 
•'Ibiif,  ISiil',  part  ii,  p.  itfi. 


a  3 


Repeal  of  Act  to  Establish  Frwdom  of  Bankiiiij       lol 

retired  tlicir  registered  notes  and  continued  their 
business  under  charters.'  Wni.  Hamilton  ^Ferritt 
was  still  in  the  Assembly,  and  in  reaffirming"  his 
responsibility  foi'  the  first  free  banking-  act.  he  de- 
clared with  a  lofty  disdain  of  the  facts,  that  it  was 
the  "best  system  adoptei'  in  any  country  from  the 
beginnin;^  of  the  world  to  the  present  time."  ■•'i'he 
sole  cause  of  its  being-  inoperative  in  Canada.""  he 
contended,  "was  that  it  had  not  been  honestly  cairied 
out.""-  ]\[r.  Cayley's  bill  did  not  come  up  ft>r  the 
third  reading-,  for  what  reason  the  debates  give  no 
evidi'uce. 

The  Minister  of  Finance,  the  Hon.  A.  'i\  (Jalt.  pro- 
])Ose<l  the  rei)eal  of  the  law  in  liSCiO.  but  the  other 
proposals  to  which  this  was  coui>led  were  so  radical 
and  far-reaching  that  action  upon  the  whole  groui* 
was  indefinitely  post]>oned.^  Six  years  after  this, 
and  sixteen  years  after  its  first  passing-,  the  "Act  to 
Establish  Freedom  of  Banking"  was  finally  i-ei>eale(i 
by  the  Provincial  Note  Act  of  18(50.  {'■2\)-'M)  Vic, 
cap.  10.   jjlG.) 

Six  banks  in  all  had  taken  advantange  of  Wvi  act. 
To  one  of  these,  the  Bank  of  British  North  America, 
the  privileges  acquired  under  the  act  were  doubtless 
of  considerable  value.  The  otliei's  did  not  thi'ive. 
Two  of  the  companies  working  solely  under  the  free 
banking-  laws  wearily  struggled  for  three  years  ( 18.0(5 
to  IS.OS)  against  the  competition  and  prestige  of  the 
chartered  banks,  and  then  began  to  i-etire  their  issues 
and  wind  up  their  business.  The  three  banks  earliest 
started  undtM-  this  act  soon  aitplied  for  charters  and 
secured  them.      (IS  Vic.  ca]).  •J(>2-*it>4.) 

'Toronto  Globe,  7tli  Murdi,  ls.")7. 

^Ibid. 

'Thompson'fl  "^lirrorof  Parliament,"  l^tin,  p.  'I'l  et  mi. 


!fi 


f.  • 

m 

li 

fl 

rllH 


1^1 1 

5>' 


1     ■*        ' 


.*■ 


■Hjjj 
PI 


1 


15-.' 


Thr  Canadimi  lUtnkin;!  Sifsfnn,  18i:-1800 


%      n 


I'll 


Of  tlu'se,  the  Zimmerman  Bank  liad  the  sliortost 
life.  F()\iii(lc(l  ill  1854  by  a  person  of  means,  it  was 
to  an  unusnal  dej^ree  the  creature  of  one  num.  It 
seems  to  liave  been  well  and  honorably  managed  by 
the  capitalist  whose  name  it  bore,  but  after  his  death 
in  Deci'mber.  1857.  the  notes  and  debts  of  the  bank 
were  red<'emed  by  liis  executors,  and  the  stock  and 
jilates  transferred  to  a  Chicago  tiiin  of  the  name  of 
Hubbard  &  Co.  In  ISoS  the  charter  of  IS.").")  was 
ameiided  by  changing  the  name  of  the  institution  to 
tlie  '•  Bank  of  Clifton."  and  extending  the  time  for 
the  subsciii)tion  and  payment  in  full  of  its  capital 
stock.  (22  Vic.  caj).  120.)  The  extraordinary  i)riv- 
ilege  "that  the  bank  notes  and  bills  n  circulation 
shall  be  of  whatsoever  value  the  directors  shall  think 
fit  to  issue  the  same,  but  none  shall  be  under  the 
value  of  five  shillings  (!i^^),"  v  as  a  feature  of  the 
amended  charter.  In  180:i  its  charter  was  repealed 
for  reasons  which  will  pres'-iitly  appear.  (27  Vic. 
cap.  4.5. ) 

The  Bank  of  the  Niagara  District,  with  its  head 
office  in  St.  Catharines,  Canada  West,  found  difficulty 
from  the  first  in  securing  the  capital  required  by  its 
charter.  The  act  of  ISo.")  retpiired  subscription  and 
payment  in  full  of  the  million  dollars  in  five  years. 
In  1857  an  indulgent  Assembly  extended  the  term  to 
1801:  in  1801  to  18(50;  in  18(53  the  capital  stock  re- 
quirement was  reduced  to  s4()().(>()0,  and  the  time  for 
paying  it  up  extended  to  18(55.  Tlie  bank  had  a  fairly 
successful  career  until  it  suft'ered  large  losses  through 
the  failures  of  ,iiiy  Cooke  &  Co.  and  others  in  1871}. 
Hardly  able  longer  to  cany  on  an  independent  busi- 
ness, it  was 


algi 


•ly 


perial  liank  of  Canada.     The  shares  of  the  Niagara 


Amendment  of  Bank  Clutrlrrs 


153 


District  Hank  were  exchaiiffod  for  tliose  of  the  Impe- 
rial, according  to  the  relative  value  of  the  two  stocks, 
and  thereafter  the  former  bank  disappeared  an  a  sep- 
arate institution. 

Out  of  tlie  five  originally  --free  banks."  but  one, 
the  .Alolsons'  Bank,  of  Montreal,  has  survived,  and  is 
now  an  institution  of  standing  and  importance. 


>;"it<. CONTI.MATION 

CHAKTKltS 


AND   AMKND.MENT   OF   RANK 


As  early  as  November.  18.04.  there  came  before  tlie 
legislature  the  question  of  permitting  the  chartered 
banks  to  increase  their  capital  stocks.  In  this  con- 
nection Mr.  Francis  Hincks  admitted  that  the  public 
had  not  shown  any  great  disposition  to  take  advan- 
tage of  the  free  banking  law.     He  said  further  : 

First.  He  thought  that  the  public  wanted  a  liirge  increase  of 
banking  capital. 

Second.  There  was  not  money  enough  in  Canada  to  furnish  that 
capital. 

Third.  The  country  must  jr(  t  this  cai)ital  fiom  foreigners,  and  the 
people  of  Canada  wouid  have  to  consult  foreigners  as  to  the  man- 
ner in  which  it  should  l)e  done. 

Fourth.  The  country  knew  that  no  English  capitalist  was  disposed 
to  furnish  money  to  Canada  through  the  agency  of  private  banks. 
But  English  capitalists  would  recognize  the  large  cliartered  banks, 
because  these  banks  had  been  known  for  many  years  as  a  safe  means 
of  investing  capital.  *  •  *  Capitalists  liad" confidence  in  them, 
but  they  would  not  have  confidence  in  private  banks  established 
under  a  new  banking  system.  If  the  people  wanted  to  increase 
their  l.nkini  capital  they  must  do  so  through  the  existing  bank.«. 

The  question  as  thus  presented  was  in  essence  the 
alternative  whether  or  no^to  retain  the  old  system 
and  give  up  the  new.  Banks  with,  a  ••  secur<'d  "  cir- 
culation cannot  long  survive,  in  a  time  of  specie  i)ay- 
ments.  the  competition  of  banks  issuing  notes  upon 


11 

ll' .  p 

1'  ^»t 


ir.4 


Tilt'  ('nmiliini  /imd-iii;/  Si/sfrm,  1817-1800 


I 


i; 


I' 


I  1:1 


I 


their  <;'('n('i-al  credit.  Tlu'V  luivc  not  tiic  earning- 
power  to  iiiaintiiiii  the  contest  on  e(|nal  terms.  Tiiis 
principle  was  illustrated  in  Massachnset's.  it  was 
acknowledj^ed  in  New  Y'ork.'  it  was  rec();;ni/.ed  in  the 
United  States,  it  has  l)een  proved  in  ('anada.  After 
1S;")4  the  fate  of  the  free  hanks  was  inevitahle:  the 
Assembly  decided  not  to  fjfive  njt  the  chart«'re(l  system 
wliich  liad  served  so  well. 

Accordingly  hills  were  passed  iiermittin^-  achlitions 
to  capital  stock  amountinj;-  to  I'J.OlO.dOO  for  the  six 
hanks  who  a])plied  (IS  \'ic.  cai>.  :{S  to  4'2.  inclusive). 
A  few  amendments  were  added  to  the  chartei's.  The 
Bank  of  Montreal,  c  f/..  taking  warning"  from  a  case 
deci(h'd  shoi'tly  hefore.-'  secured  the  I'ij^ht  to  hold 
moi't}^aj.;"es  on  ships,  steamshijis  and  other  vessels  hy 
way  of  additional  security.  Tlu'  shares  necessary  to 
(lualify  as  a  director  were  raised  to  twenty,  and  dis- 
counts hearing  names  of  directors  were  limited  to  a 
tenth  of  the  total  discounts.  Provisions  jtennittini;' 
the  transfer  of  shares  and  the  payment  of  divith'iids 
in  Great  Britain  were  inclu(hMl  in  most  of  the  acts. 
Ostensiblv  as  a  security  to  the  i)uhlic.  reallv  as  a 
brace  to  the  debenture  market,  all   the   banks   were 

'Cf.  Mr.  Fillinore'.s  reimirk:  "It  cannot  be  expected  tluit  hank- 
inj;  uinlcr  this  (tlie  free)  system  will  he  as  profitahle  as  under  the 
Safety  Fund  system."  Report  of  the  ("omptrolior  at  N.  Y.,  1S4'.'. 
p.  "iT.  It  will  he  remembered  that  the  latter  system,  the  hanks  of 
which  had  a  i)rivilet;e  of  i.ssue  similar  to  that  of  the  Canadian  char- 
tered banks,  disappeared  from  the  state,  not  through  th<?  action  of 
coaipetition,  but  because  the  state  ceased  to  grant  chartersand  those 
expiring  after  l.S4!»  were  not  renewed.  The  banks  were  forced  to 
reorganize  under  the  general  banking  law  or  go  into  liquidation. 
The  principle  referred  to  in  the  text  received  most  striking  recogni- 
tion by  the  United  States  in  the  10  per  cent,  tax  upon  state  bank 
notes  imposed  in  ISil."),  b!  l'.  S.  Statutes  at  Large,  ]>.  4('.!t. 

-McDonald  vs.  the  Hank  of  U.  C,  U.  ('.  (I  B.,  Hilary  Term.  I.'. 
Vic,  p.  L'fM. 


Amendmcnf  of  ISttiik  Clnniirs  mr) 

rt'(|iiir('(l,  in  case  tiu-y  availed  themst'lvcs  of  tli»'  \\v\- 
mission  to  iiu-rease  their  capitals,  to  invest  one-tenth 
<»f  their  paid-uj)  cajtitals  in  dehentures  of  the  jirovinee 
or  of  the  Consolidated  Municii)al  Loan  Fnnd.  The 
charters  were  continned  to  the  1st  Jiinnar.v.  1S7<».  iuid 
the  end  of  the  then  next  session  of   I'nrlianient. 

A^^ain   in    LS.').').  when   the   tide  of  sudden   and    re- 
nuirkahle  i)rospei'ity   whi(d>   foll(»wed   the   reciprocity 
treaty  of  ISa-l  was  ileg•innint,^  the  lej;islatnre  decided 
to   increase   the    ninnher    of    chartered    hanks.      The 
^lolsons".  Zininiei-nian.  XiaMai'a  Dist^-ict.  and  Kastern 
Townships  Hanks  were  inc(»rporated  with  anthori/ed 
capitals  of  f2r)U,(KM)  each..  L'.*)().(»()(»  to  Ix-  paid  in   ea(di 
case  hefore  the  hank  siionld  hep^in   husiness.  and   the 
whole  in  five  years.     The  St.  Francis  I'.ank  was  <diar- 
tered  with  a  capital  stock  of  I'lOO.OOd.  and  the   Hank 
of  Toronto  with  f."")0( ).(»(»().      In  these  charters  it  was 
provided  that,  instead  of  voting-  hy  scale,  the  share- 
holders should  have  as  many  votes  as  shares.      Hut 
in  the  acts  to  amend  and  consolidate  the  charters  of 
the  Hank  of  Montreal.  Hank  of   I'pper  Canada,  and 
Conunercial  Hank,  passed   in    If^nc*  at  the  reciuest  of 
these  corporations,  the  old  votinf.^  scale  was  retained. 
(1!)    Vic.,    cap.    70.    l-io.    hi!.)     The    (^udjec    Hank 
ohtained  a  similar  act  in  1S.")S  (2i  Vic.  cap.  \-ll):  the 
City   Bank  in    18(5:}  (-^7  Vic.,  cap.  41 ).     The  directors 
were  in    each  case  lindted    to  one-twentieth   of  the 
total   discounts.      Hy   another  act  of   1S.")(')  (diartered 
banks  were  jtermitted  to  (diarge  not  more  than  one- 
half  of  one  per  cent,  on  ninety-day  paper,  in  addition 
to  the   legal    rate   of    discount,    for   the   expenses    of 
•agency  and  collection,  when  the  security   was  ]>aya- 
ble  at  a  place  v'ifferent  from  that   where  it   was  dis- 
counted,    (li)  Vic.  cap.  48.) 


i4 


f 


:ti 


150  Till'  fJiiHiii/iaii  liiink'iu;!  Si/s/rm,  1817-1890 


11 


Poiiiilties  upon  usury  liad  Ixmmi  ultolished  in  \^')'.i 
by  a  law  according;  to  wliicli  coiitracts  and  securities 
were  to  be  void  witli  rcsjicct  only  to  tbe  excess  of 
interest  nbove  six  jx-r  cent.  (1(5  Vic.,  cap.  SO.)  Hut 
tbe  act  did  not  a]>ply  to  tbe  banks  or  to  tb«*  corjx*- 
I'ations.  su<di  as  loan  coni])anies  or  building  societies, 
authorized  to  borrow  or  lend  at  a  higher  rate.  Until 
ISoS.  banks  taking  or  accepting  or  receiving  the  rates 
higher  than  six  percent,  were  liable  to  forfeit  treble 
the  value  of  tin;  money  lent  or  bargained  for.  half  to 
the  crown  and  half  to  the  person  suing  for  the  })enalty. 
The  act  '2'2  Vic,  cap.  So.  however,  i)erniitted,  in  gen- 
eral, that  any  rate  of  interest  agreed  upon  might  be 
exacted,  but  i)rohibited  the  banks  from  taking  or 
stipulating  for  a  higher  rate  than  seven  i)er  cent,  per 
annum.  When  the  paper  discounted  was  payable  at 
another  of  the  bank's  own  offices,  the  charges  for 
agency  and  c(dlection  on  paper  payable  at  another 
place  than  that  where  it  was  discounted,  were  reduced 
foi-  short  time  discounts  to  correspond  with  the  rate 
of  one-half  of  one  per  cent,  for  securities  payable  in 
90  days. 

In  ISoO  another  general  act  applying  to  the  char- 
tered banks  was  passed  for  the  avowed  purpose  of 
granting  additional  facilities  in  connnercial  transac- 
tions. The  measure  had  been  strongly  urged  by  the 
banks.'  It  was  the  first  step  of  the  legislation,  after- 
wards much  developed,  enabling  the  chartered  banks, 
in  discounting  bills  of  exchange  or  notes,  to  take  as 
collateral  security  bills  of  lading,  specifications  of 
timber,  or  receipts  given  by  carriers,  whether  on  land 

Mournal,  Can.,  IS.V.',  Api.endix  no.  ti?,  Evidence  of  the  Rank  of 
U.  C,  I>ank  of  Montreal,  Hank  of  l>.  N.  America  ami  Commercial 
Bank. 


Aiiifnihuent  of  Ihink  Charlers 


ir.7 


ui"  wjiter,  kct'iiers  of  covrs.  wluirfiii^tTs  imd  war*'- 
liousi'meii.  Tlif  biiiiks  were  cniiKiwcrcd  to  iiccjuiic 
title  to  tlu'  grains,  g<»ods.  wares  or  incrcliandisc  drs- 
cribi'd  in  the  facr  <d"  the  instiunu'nt,  by  indoisciiK'iil 
of  tlu'  owner  or  person  entitled  to  receive  them,  snh- 
jeet,  of  eoursi'.  to  the  ri^ht  of  the  indorsei'.  uiion  his 
]»aying  the  deht.  to  have  the  title  re-ti'ansferred. 

In  case  the  deht  were  not  paid  when  due.  they  were 
authorized  to  sell  the  connnoditio.  deduct  th«'ir  claim, 
costs  and  interest,  and  return  the  i-emaininj^  ])roci'eds. 
if  any,  to  the  indorser.  Hut  no  -iucli  transfer  of  title 
was  pei'mit  (i'<|  unless  the  hill,  or  note,  or  deht  was 
negotiated  at  the  same  time  with  the  indorsement  of 
the  collateral  security.  The  hank  mi^ht  not  hold  the 
goods  for  more  than  six  calendar  months.  In  case 
they  were  to  he  sohl.  it  was  obliged  to  give  ten  days' 
notice  to  the  indorser.  'J'he  important  icstrictions 
were  the  last  two  but  one.  'J'hese.  it  was  Ixdieved. 
were  sufficient  to  keep  the  banks  from  engaging  in 
trade  or  risking  their  capital  by  speculative  invest- 
ments in  graded  merchandise. 

Sevi'u  more  bank  iharters  wei'c  added  to  the  list  in 
ISoC)  and  \ir<7u .  The  authoi'ized  stocks  amounted  t<» 
f::i.!Ki(').()r)(5  currency,  thus  nmking  a  total  of  twi  Ive 
banks  incorporated  between  18,');')  and  IS,'*?  inrlusivc. 
and  of  ll»,;5-J(».()(i(')  currency  added  to  the  authorized 
banking  capital  of  the  province.  This  was  more  than 
double  the  total  paid-up  capital  ot  tlu'  bank^  in  IS.M. 
and  nearly  e(iual  to  their  actual  capital  in  I  SO  I. 
These  rigures  indicate  tlu-  manner  in  which  the  ex- 
pansion antl  speculative  movements  wcic  jilVecting 
people  and  legislature.  l\vints  soon  pro\  ti|  tluit  so 
many  banks  were  not  neetled.  'J'he  L'nion  lUiiik  and 
St.    Francis    Bank    never  be<:an   business,   and   three 


II 


i^.: 


158  Thr  CiDHiilinn  /lfi)i/,-iii;/  Si/s/nii,  ISIT-ISKO 

clwiitris  M;i-jnil((|  in  tliis  iicriod  were  rt-pcnhul  in 
IS('>;!.  tlif  Itiuiks  liiiviii^-  lnilcd  t<>  fiiltil  tin-  duties  re- 
(|iiir((i  l»y  liiw.  Km-  llic  hanks  wliich  inanaKrd  to 
siiivivr.  lilt' Irnisliitiii'i-  was  olilij^cd  to  relax  its  policy 
n{'  re(|iiirin;^'  t'lom  each  hank  a  capital  stock  of  l-ijit.- 
(>()(>.  and  j;reatly  t<t  extend  the  time  for  paying;  up  the 
retliiced  stocks. 


I!'   i 


( hie  explanation  of  the  lary;(>  increase  in  hanks 
has  already  heen  ^iven  in  the  mention  (»f  the  ^''^'iit; 
agricultural  auil  commercial  (duin<i,-es  which  were 
[dainly  api>arent  in  If^.").').  The  ileciprocity  Treaty, 
in  furnishin;;'  the  Canadians  with  a  lar^e  market, 
easily  reacdu'd.  for  the  jiroducts  of  their  iisheries. 
farms  and  foi'esls.  was  undouhtedly  a  powei-ful  fac- 
tor in  the  nt  w  prosperity.  I>ut  lonj;"  hefore  the  suc- 
cess of  Loi'd  Klein's  dii»lomacy.  forei<;u  cajdtal  was 
he^inuiu}^-  to  come  into  the  colony.  ay;riculture  was 
reviving;'  in  the  West,  population  was  increasinjj^  rajt- 
idly.  vast  puhlic  works  were  stai'ted.  larj^c  additions 
to  the  railway  system  were  conunenced.'  (Joveru- 
meiit  assistance  was  <;riint  !  to  the  trunk  lines.  The 
(irrand  Tiunk  Railway,  the  (Jroat  Western  Railway, 
and  some  eastern  roads  toj^cther  efl'ected  an  increase 
of  I. ;■)(»;)  miles  of  road  hetween  lS.")"i  and  1S.08.  The 
railway  mih>a<;e  of  Canada  was  increased  over  l.nOO 
per  cent.  'J'he  hotter  prices  for  jn'oduce  ohtained 
after  the  treaty  turned  the  attention  of  investors 
to  land  speculation.  Excessive  prices  were  ^iven 
for  wild  lands.     Sidiemes  for  new  villages  and  towns 

'Cr.  />iii</.e):'<'  Mityaziiii,  v<il.  ii,  p.  441;  vol.  xii,  p.  lltiS;  vol.  .\iii,  p. 

."):!s. 


li 


I8r)?-i8f;;j 


i:.!» 


wdf  »'\  fr.vwlicrc  allnjit.  Iliiivcsts  were  iilMiiidiiiit 
in  IS.'):!.  lsr»l.  I.sr>r»:  tlic  pi'icc  nf  ImtjkIsIiiIVs  liiu'h: 
and  Vet  in  IS.")7  llic  ranncrs  were  nntrr  dfcply  in 
dt'ltt  than  in  IS;".'}.  'I'licv  had  suhl  I'or  casli  and 
hou^ht  larm'ly  on  credit.  Cuiisidcralih'  additions 
wtTf  nunh'  l(»  improved  i'ai'ininj;  lands,  hnl  many 
tie(l  lip  their  capital  hy  specniatin^'  in  iinpi'oduc- 
tive  real  estate.  'I'l-aile  was  stinmlaled  to  an  un- 
precedented de;^ree.  and  hank  uccomniodations 
stretched  to  the  utmost  limit.  Kxcessive  and  ex- 
travaj4;ant  importations  occurred  in  lS."t»i  and  IS.">7. 
The  Municipal  Loan  l''uiul.  a  scheme  wherehy  tlu' 
])r(»viuce  ^jfuaranteed  the  horrowinj^'  of  the  towns 
and  counties,  served  to  swell  the  iiiflatioii.  The 
pressure  for  money  was  very  stronj^'  in  is.")('i:  there 
was  a  i»rospect  that  both  piihlic  works  and  railway 
expendilures   would  soon   he  ceased. 

Then  came  the  had  cr()]»  id"  !^i."»7.  The  comnierciiil 
crisis  in  <ireal  liritain.  JMii'ope  and  the  I'liited  States 
was  at  its  heij^ht.  The  suspension  of  specie  pay- 
ments in  New  York  on  the  14th  (Jctoher  compelled 
the  Canadian  hanks  to  ^uard  against  an  exti'aordi- 
nary  drain  of  <^old.  'IMiey  ceased  discount  iiij;'.  Some 
live  or  six  weeks  elapsed  liefore  they  could  safely 
grant  the  advances  necessary  to  hring'  the  crops  of 
the  year  to  market.'  'I'liis  delay  <d'  i»roduce  opei'a- 
tions  alone  eaiised  ;;reat  loss.  As  a  result  of  the 
crisis  elsewhere  the  (!auadians  next  sulfered  a 
heavy  falling'  off  in  the  demand  for  their  grain, 
ashes,  timber,  etc.  Then  followed  nuuu'rous  com- 
mercial failures,  a  fall  in  all  values,  t  he  collapse  of 
the  real  estate  hoom.  a  contraction  of  credits,   a   sec- 

'Tlu)iMi).sun's  "  Mirror  of  I'lirliaiiii'iU,"  l>>tHi,  "JTlli  iMarcli. 


IGO 


The  CdNudian  liinik-in;i  Si/s/n/i.  1817-1800 


oikI  bad  harvest  in    l.^aS.   and    two    3'ears    of    black 
depression.' 

P>iit  in  iSfit)  tlu'  Provincial  Parliament  was  a^ain 
addressed  by  jtelitioners  foi*  new  bank  eluirters.  To 
secnre  evidence  by  wliicb  to  ^nide  the  policy  of  tlie 
House  with  n-spect  to  bankiny^.  a  select  connnittee 
on  banking  and  currency  was  struck  on  the  motion 
of  tlu'  Minister  of  Kinance,  Mr.  A.  T.  (Jalt.  in  the 
evidence  presented  by  this  <-onimittee.  and  chiefly 
obtained  from  the  leading  bankei's.  there  was  nnich 
jKtinted  criticism  >f  the  existing  banking'  system. 
It  was  objected,  c.  ./..  that  the  law  had  alldwed  the 
creation  of  banking  capital  iteyond  the  needs  of  tiie 
country.  'I'he  ]>rivile^e  of  circulation  was  conf<'rred 
withoi.t  the  necessary  safej;uard.  A  dishonest  bank 
could  bej;in  business  nuM-ely  by  investing-  Lio. ()()(»  in 
debentures:  there  were  no  means  to  assure  the  full 
l»ayment  of  the  reipiired  cajutal.  and  this  minimum 
was  often  too  small.  There  was  no  (ddioation  to 
]»ublisli  tl'.e  mimes  of  stockholders.  The  plan  of  lim- 
iting- circulation  to  the  paid-in  capital,  l>lu^  specie 
and  debentures,  was  delusive,  as  either  of  the  hittei' 
could  hv  fj^otten  only  by  jmrcliase  with  capital  or  de- 
posits. If  cajtital  were  uscl.  then  so  nuich  of  the 
capital  was  displaced.  The  law  thus  treated  as  dis- 
tinct fi'om  capital  what  was  leally  a  pait  of  it.  If 
deposits  wei'e  used  then  tlw  bank  was  allowed  to  base 
an  additional  litibility  upon  what  it  was  already 
bound  to  pay. 

There  was  insuflicient  metive  provided  for  an  active 
interest  (»n  the  part   of  the  directors.      It  was  ur^ed 


'.loiiriK'l,  ("an.,  I,s'>'.i,  .Aiipt'iHlix  no.  "i?,  Ht'ixnt  and  I'rort'filiiiys  of 
tlu'  ('iiniiiiitti'c  on  liunkinvr  ami  ("luifncy,  i.s  the  It'U'hnj;  autliority 
I'or  till'  facts  ill  tailcil  in  tin-  last  two  jiaia>:ra|ilis. 


18r)7-lS(J3 


101 


that  u  Iiir^tT  lioldiiiiM  ,,f  paid-np  stock  should  Ik-  ex- 
acted  of  them. 

Tlu'  effects  of  the  crisis  had  heen  a«x»-avaled  some- 
what   by    the    restriction    on    the    rate    of    discount 
•  •luirf,'eal)h"  hy  the  hanks.      Th.'  hanks  couhl  ^ivc   ,„, 
warning- of  approaching^  difficulty  hy  raising- the  rate. 
It  was  necessary  peremptorily  to  refuse  discuiuts  to 
some  applicants  and  to  coutin.' their  accoimnodatious. 
as  far  as  i)ossihIe.  to  wealthy  and  independent  custo- 
mers,   and    those    with    ••valiuihle    accounts."   /.   r.. 
customers  from  whom  iuci(h'ntal  advantaKvs  of  ,.x- 
••hauK-e.   agency  char^r,.s.   lar^^'   deposits.   undoui)ted 
security,  and  the  like  mi^ht  h."  derived.     Th,.  result 
was  that  inferior  cu      n.wrs  and  those  who.  very  pos- 
sihly.  most   needed  the  assistance  to  tide  them'ov.'r. 
were  the  least  likely  to  j^ct  it. 

Hut  it  also  api>e;.red   that    in  every  <listrict  (.f  any 

''"I""tan<-e    tlH'    hanks    h,.d     planted    a-enci..s    unil 

••n.u^^ht  lo  the  <l(,orof  such  communities  lihei;,l  a<l- 

vantaj^^'s.  with  the  pow.-r  and   security  of  the  same 

laro-e  monied   corporations  which  served   th<"   cities. 

The  hranches  had  not  indeed  (|uiete<l  tlu'  demand  for 

small  hanks.      Hut   small  hanks,  so  the  experieiu-e  of 

the    riiited    States    seemed    to    teach,    were    unsafe. 

(!<'sides.    it    was    p.-rceived    f|,at     the    cry    f..r    snuill 

hanks  was  one  seldeiii  vojc  d    |,y  the  lendin.y  part  ..f 

the    community.      As   a    provjn.'e.   Canada    s^-rx    pr..- 

jM-i'ly  refiis.Ml  the.MernaJ  t;isk  of  .juietin-  hormwers' 

claims.      Th,.  juinister  hinis.-lf  ackn.iwle.lovd  that  as 

a  rule  the  hanks  h;id  Ih.m  well  ami  wisely  mana-vd.' 

Ihirin- the  panic  in  th.-  (nited  Stat.s  Canadian  notes 

were   receivrd  filer.'   Ullli    tllr  saiUe  readiu.s--  ;is  sp.'cie 

in    payment    of    ,i,,t,.s    vv|,i,|,    th.'    |..cal    hanks    wen- 

'Tliompsoirs  ••  MircMi  .  r  I'm  liaiiunt,"  l>-.,u.  ,,    -i 
11 


I  ■ 


I 

M 


16-^ 


Tkr  Canaditni  /tnii/riiif/  S;/sfnn,  1817-18!tO 


called  on  to  I'iMlccm.'  And  yet  the  niinistt'i-  was  not 
satisfied,  lie  had  ust  d  the  eonnnittee  to  conceal  the 
l>nrpose  \vhi(di  he  ri'vealed  in  lS(i(). 

This  was  the  estaldishinent  of  a  hank  of  issne,  or 
treasnry  <le|»artniiiit.  for  whicli  he  introdnced  reso- 
lutions on  the  :27lh  Maich.  lie  wished,  he  said,  -to 
put  the  currency  <»n  a  perfectly  sure  and  safe  footinj.;, 
hy  separating'  it  from  the  hanking-  interest,  and  hy 
I'enioving  it  from  the  possiide  suspicion  of  heiny 
affected  hy  pcditical  exigencies."  I>ut  his  solicitude 
was  insincere,  his  monetaiy  theories  false.  His  ulti- 
mate oI)ject  was  assistance  to  the  jjrovincial  finances; 
his  pi'oposed  means.  Ihe  emission  <d"  Ifgal  tender, 
though  convertiide.  government  notes  as  the  solo 
curreiu'v.  The  resolutions  found  sliglit  approval,  as 
the  order  for  their  considci-at  ion  in  eoimnit  tee  was 
dis(diarged  the  ISth  .May.-  'I'liey  are  interesting  now 
only  as  the  forei-unner  of  tlio  Provincial  Note  Act  of 
1S()(),  the  i)rovisions  of  whicdi  were  largely  d'.U' to  the 
monetary  fallacies  and  financial  exigencies  of  the 
same  minister. 

The  policy  of  tin.'  legislature  was  steadil.\  to  rxfend 
the  system  (d"  (duirterod  hanks  on  Ihe  old  lines.  In 
1S.")S  the  Kank  of  Canada  i afterwards  the  Canadian 
Hank  of  Commerce  i  was  incorporated.  ("i'J  \'ic..  cap. 
KU.)  In  IS."tl(  three  (duirtei-s  were  granted,  anmng 
them  that  of  La  Hauijue  Naiionale.  situate  at  (^hiohcc. 
{'J-J  \'ic..  cap.  I'l-J  l(»-f.  -Jd  sess.)  In  ISCil  the  Mer- 
chants" Hank  and  La  Uancpie  .laccpn-s  (-'artier  were 
croate(l  in  answer  to  the  petitions  of  .Montreal  capi- 
talists. r.M  \'ic..cap.  S'.»  and  'MK)  The  Koyal  Cana- 
dian Hank  was  charteied  in  ISti-l.  the  Mechanics" 
Hank,   the    Inion    Hunk   of   Lower  Camida  and   one 

'.Iniiriiiil,  Ciiii.,  1>">'.I,  .ApiKMi'Ux  i\<<.  >,'. 

-.Fiiiirnal  ul' llic  lA'j^i.slulivr  .V.sscinbly  of  tlu'  I'tciviiue  (tl  <  aiihia, 
I  sen.  pp.  Ill,  45l'. 


1 857-1  K'i:? 


1  iy,i 


otiifi'  coMcrni  ill  lS(5r»  and  two  more  still  in  lS()t). 
Fiuiitct'M  cliartj'i's  ami  aiiu'inlinj;'  acts.  aiitlioriziiiH" 
capital  foi- ^^ll).4<50.(l(»().  were  the  iccoimI  for  the  nine 
years.  1  sr)S  to  1S(!(>.  I'aynieiits  ainountinj^- to  si .47.'),- 
0()i»  wei'e  re(|uire(l  on  the  twelve  chart<'is  liefoi-e  the 
hanks  conhl  hej;in  hnsiness.'  <)nly  the  seven  hanks 
named  in  the  text  to(»k  advantage  of  theii'  charters 
and  he^an  a  corporate  life  of  some  duration.  Tiie 
charteis  of  the  I'.anks  of  ("lifton  and  Western  Canada, 
like  those  of  the  International  and  ('olonial  Hanks. 
vv,.|-,.  frpcaled  ill  ISi;:!.  The  iiitt'i'iiat ioiial  and  Colo- 
li.al  Manks  had  failed  in  iS.Mt.  without,  however,  in- 
Hictin;;inu<'h  loss.-   All  had  susjiernhMl  their  payments 

.•Vft»'r  ls")7  tlif  ilt'iioiniiiHtiiins  <it  tlio  cltM-imal  rmrnicy  siii;  useil 
alrnnst  t'xcliisixely  in  (  aiiailiaii  Ic^i.^lati'iii. 

'riinstht'  last  I't'tiiiii  inailc  til  till' '.'"Vfiimiciit  by  the  ZiiniiU'riiian 
Hank  U'lian>.'i'il  to  tlic  liank  nf  (  lirtoni,  was  I'nr  '  ictnlicr.  |s."i7;  of 
tilt' (."(lion jal  anil  Intcrnaiidnal  jiunks.  situaif  at  'i'mipntn,  forOcto- 
Iter,  IS.V.I: 


Avcriifri-  of  tlu'  .A.ssfts  anil  l.ialiilitii-s  of  tlic 


I.IAIII  111  I  KS 

<  apital  stock  |>aiil  in. . 

Null's  ill  ciiciiiation. . 
Kalaiifi.'s  iliif  III  otliiT 

liiinks 

Cash      •lc|iosit('il      lint 

huaiiiij:  interest  .... 

<  anil    ilcpositt'il    liear- 

inn  interi'^t 


.VSSKTS 

I  'iiiii  ami  liiiliion 

I.aiiili'il  iiii)|icrty 

( ioviTiuiii'iit  si'i'iirilies 
.Nott'^.iiii  liillsiif  iillier 

li.in..-      

IWihuuie^     'iiu*      fill  in 

oilier  iianks 

Hills    ami     notp«     ilis 

conntfil 


/auiiii't'iniiii  < 'iiliiiiliil  liiti-i'iiiitiDiiitl 

Hunk,  till'  iluiik.  liir  ■lank,  tnr 

Orl  .  l-."iT  .">i>|it  ,  l>*j!i  Si|it.,  l^V.i 

?4."(;;,.'iO(i '  ^1  ji'.iKio  si:;-_',.,oii 

:'.:;/"'.i|  7">,:;'i<)  H'.t.OL'l 

L'7,7ll  ;i.<iiil  Tj.n'.t: 

|o,.siMi  '_'I,.")I7  '.I, '.MIS 


Itaiik  III' 

Wl'StlTIl 

('miiuiIii  tor 
.liiiii'.  l-iil 

lilo|,7.-)0 
•">,•_' I  n 


'.I'.t.L'llO     

*I7I.7I:'      *".i!t.s7s        :«-|:;i,ns7 


$-.'.7l.':i      tl^,7"lM 
l,ir.:;  jti-_' 

I'l.'I'HI  li'i.'JI"! 


u.u; 


"i.OJs 
it. 71:; 


.*-jo,(i:;n 

■-•'l:':; 
|.">,()no 

M.'.tiio 
|!t,til! 


.■|;l(i,.'i.")!t        I  r.i, •_'(.■>  L'o|,>7'i 

|ti:'.ii,L'-"i(    fJl-.Mls      ti'jtis,:;:;! 


.•^jOli.'.lt'itl 

^1,11-". 

::,S7l 

r_',oi)o 

:;,7Mi) 

•_'.".,  11(11 1 

l.l.JMi 

.*iitt;,\t(;ii 


Viile  Vi*f<t*i*  (jiizetu.  '  ol.  xvi,  \\.  •J,ti7s;  miI.  .wiii,  p.  -,l"7;  vol.  xx. 
|i.  I.ii-.M. 

I'lic  Mit««  if  <  "I  if  Ion.  as  snrli,  never  maile  any  ri-lnrns  !i>  the  i:ov- 
'riuuent       ll«iil»l»aril,  ot   riiirai;ii,    was   sini-eeileil    iivmie  ('allaway, 


'i  ki  I" 


If 


164 


The  ('<i)i,(tlinn  /tiin^-iuf/  Si/s/riti,  1S17-180O 


I 


and  (liscoiitimuMl  oitcratioiis.  and  the  legislature 
then  deciiicd  it  advisable  to  ]»revent  tlieii"  resumption 
on  the  terms  and  conditions  embodied  in  their  ('bar- 
ters.     (27  \'i('.,  eaj).  4.0.) 

None  of  tlie  chartei's  granted  between  Lsr).s  and 
]8(5()  permitted  the  beginning  of  business  with  less 
than  s4(»(».(i(Mi  capital  subscribed  and  sKKi.oOd  paid 
up.  As  evidence  of  its  ixnni  Jidc  i)iiyment.  it  was 
usually  reipiired  that  before  the  new  bank  should 
issue  notes,  its  jtaid-in  capital  sliould  be  depositeu.  ns 
specie,  in  some  t'xisting  chartered  bank  of  the  pro- 
vince. One  year  from  the  passing  of  the  act  was  tlie 
ordinary  time  in  which  a  charter  Ix'canie  foifeited 
by  non-user.  In  some  cases  the  limit  of  one  tiftli  the 
paid-in  capital  stock  was  imposed  upon  the  cii<  illa- 
tion of  notes  iindei-  five  dollars  :    in   otiitis.   of  those 

fiUMU'rly  of  Turoiitu,  as  inosidcnt.  Sdino  circiilatioii  I'nr  its  notes 
was  (>l)taiiu'<l  in  tiie  Wi-sU'iri  statt-s  l)y  ailveitisin^:  in  a  l>ank  note 
rt']i()rtt'r  tiiat  tlie  "  notes  ot'  tin'  Hani\  ttf  (."litton,  incor|'orateil  liy 
tiie  I'ailianient  of  Canaiia,"  would  l)e  ledeenieil  at  a  lnokei's  oiliee 
in  C"liicaj;o,  Enoiij;!!  notes  were  jiaiii  to  <iet  creileni'e  f<ir  the  state- 
ment and  then  the  supply  of  funds  was  stopped.  Over  ij.'>,nu(>  of 
tiie  pajier  tluis  reptidiated  was  sent  to  Clifton,  hut  there  was  no 
inoni'V  to  meet  it.  Tlie  I'aiik  of  Western  Canada  was  controlled  hy 
one  I'addock,  a  New  York  tavern  keeper,  who,  hy  paying'  for  liis 
stock,  seemed  a  lespectahle  ohl  man  at  Clifton  to  act  the  st<iol 
pijreon  as  president  of  the  hank,  hut  he  had  no  check  on  the  issue 
of  notes.  I'.n'oits  w  ere  ma(li'  to  lloat  them  in  Illinois,  Wisconsin 
and  Kansas,  with  soiiii'  success,  hnt  the  notes  were  never  rcih-emed. 
Keed,  of  hockpnrt,  N.  Y.,  a  man  (d'  had  repute,  owned  nearly  the 
wh(de  stock  of  the  International  iJank  in  Toronto  when  it  failed, 
ami  was  connected  also  with  the  Hank  of  Clifton. 

A  coiiiinittce  (il  tlie  As^emhly  reporied  in  IsiiJ  that  the  position  of 
tlie  two  hanks  tir>l  namecj  was  such  that  it  was  discredilahle  to  the 
iejlislatnre  to  all'iu  their  chaitcrs  to  remain  in  existence  any  loni:fr. 
Action  was  postponeii,  however,  (ill  a  committee  of  isi;;;  reported 
that  "  considerations  (d'  pulilic  )iolicy  ini|ierati\  ely  demand  the  im- 
mediate repeal  id'  the  charters  of  these  four  hanks."  Vidi  .loiirnal, 
Canada.  \sa\.  p.  icn;  il„,l,  jso-j,  Appendix  no.  (. 


FiiUnri'  of  Ihr  Itdiih' of  f'/i/n'r  Ciimn/n 


165 


.''1 


iindcf  f(»ur  dollars.  DifVcrcnccs  arc  also  lo  Itc  noted 
ill  tilt'  ai)pli('ation  of  a  scale,  oi-  tlic  iiile  of  one  for 
each  share,  to  the  votiiij;  (»f  the  shareholders.  In 
reiiuirenieiits  of  larf.(er  stock  iiivestuieiits  hy  the 
diiectors.  ])roof  that  cajtital  is  acluallv  ]»aid  in.  and 
the  like,  tlu'  charters  emhody  important  corrections 
sujj^^ested  to  the  coinniittee  of  IS.")!*.  It  hardly  n(>ed 
be  said  that  they  contained  all  the  safeguards 
and  i>rovisions  j»r<  viously  adopte(l.  in  conij)lianco 
either  witli  inipei-ial  reconuneiidations  or  the  teach- 
inj^s  of  colonial  expei'ience. 

It  was  inipossiljje.  even  for  the  seven  hanks  tinuliy 
started,  to  secui-e  tlu'  ])aynient  of  theii-  cajiitals  in  the 
time  limited  hy  tlieii-  charters.  The  Parliament  ac- 
cordin^'ly  consented  to  relax  tliese  reciiiirements  in 
a  manner  very  like  that  in  which  we  have  seen  it 
induli^e  the  Niaj^ara  District  Hank.  'i'lie  laws  of 
l8r»S  had  contained  no  less  than  five  extensions  of 
the  times  prescribed  for  hanks  ]ii"evioiisly  chartered, 
to  seciire  full  subscription  and  jtayment  of  their 
stocks.  And  similarly.  I)etween  \^i\'2  and  \Hi\i).  the 
Mercliii  its"  Hank,  the  Canadian  Hank  of  Commerce, 
the  E;'  ei'ii  Townships  Hank  and  the  (^)uehec  Hank 
were  all  obli<;('d  to  secure  extensions  of  the  periods 
in  which  the  jtayment  <»f  their  original  or  additional 
capitals  was  re(|uired  by  the  acts  authori/in^-  them. 


IV 


?.i  * 


m 


:i:i' 


^o<». 


-KAII.IKK    »>1'     IIIK     I'.ANK     <  H'    I    I'I'I:K    CANADA 


The  pei'iod  between  IS.")'J  and  is.'t?  was  a  time  not 
only  of  ureal  economic  exjiansion.  but  also  of  ^rrat 
economic  chaii<;-e.  The  development  hatl  been  over- 
discounted  by  sanguine  Canadians,  and  lu  iice  values 
colhqtsed  when  the  crisis  arrived.  ( )f  the  lon^-  de- 
l)ression    tliat    followed    a     K'adin^'    cause    must     be 


h  i 


'it 


1 


'■  ,ii 


16<J  Thv  CuKKlian  /.'(ud-in;/  Si/sfrot,  1817-1800 


h     f- 


I     -s; 


souj^lit  ill  the  slowiu'ss  and  difficulty  of  the  adjusl- 
iiu'iit  to  new  coiiditioiis  brou^lit  about  by  tl.c  intio- 
(Uurtion  of  railways.  (.'Xtcnsioii  of  ]»ublic  works,  roads 
and  brid;;cs.  sliiftin;;^  of  the  routes  of  (•(•nimerct'  and 
alterations  in  the  (diicf  industrial  jairsuits  of  impor- 
tant districts.  Tlic  statement  may  be  made  witli 
especial  force  of  I'pper  Canada,  or  ('anada  West, 
where  the  real  estate  excitement  had  been  hif^her 
and  the  increase  of  railways  greater.  Many  of  the 
towns  i)lace(l  for  water  communication  were  left  on 
one  side  by  the  railways  or  deprived  (»f  their  imitor- 
tance.  C'obour<^.  Sandwich.  Dundas.  Uurlinj^toii. 
Kinjj^stoii.  Nia{;ara.  lirockville  and  others,  once  the 
centers  of  flourishin<f  trad*',  either  failed  to  recover 
from  the  depression  or  lost  heavily  to  more  favored 
situati(»ns.  Lumber  <;ettin^  and  real  estate  improve- 
ment were  pushed  backward  and  lUM'thwardlo  make 
room  for  more  settled  industry. 

In  the  early  days  of  the  province  the  Mank  of 
Upjx'r  Canada  had  been  the  jnovincial  bank.  It  had 
^iven  assistance,  comparatively  enormous,  to  the 
<levelopment  and  <ommerce  of  the  country.  Land 
was  then  the  single  valuable  security  jiossessed  by  its 
customers  in  any  (luantity.  It  was  therefore  neces- 
sarily more  oi-  less  a  land  bank  in  a  disguised  form, 
although  in  their  ostensible  character  the  greater 
number  of  its  transactions  were  doubtless  legally  jter- 
missible.  Its  managers  and  clerks  were  often  Mritish 
immijj^rants  who  lacked  the  intimate  knowh'jj;e  of 
Canadians  and  ('anadian  trade  that  lifelong'  famili- 
arity would  have  ^iveii.  In  many  instances,  too. 
they  failed  to  exhibit  acipiaintaiice  with  the  simplest 
of  bankin<;°  principles,  hiscounts  were  fri'cly  ex- 
temled  to  lawyers  and  le;;,isiators.  the  j^entry  and 
professions.     ••.Vccommodation "  paper  was  common. 


!       'f 


;»{ 


FnUure  of  fl„-  Bnuk  of  r/ipcr  Cniada  ic? 

Loans  wore  made  to  eivil  servants  an<l  to  politicians 
No  one  will  deny  that  tlie  bank  was  }rniltv  of  mueh 
bad  practice,  that  it  paid  hiKh  rates  of  divid<.nd  when 
't  <'nul<l  ill  afford,  that  it  failed  to  write  off  accrued 
losses,  that  it  impaired  its  capital  by  extravagunt 
bonuses,  that  its  internal  organization  was  defective, 
and  that  its  management  was  often  blind,  reckless 
and  ij,niorant. 

Still  the  bank  survived.     It  was  inv(«sted  with  the 
<lignity,   it  enjoyed    the   prestij?e.   of  a   govermnent 
institution.     Its  credit  was  always  hijrh.  its  -green 
notes'-    ludd    in    great   esteem.     Quantiti.-s  of  notes 
issued   twenty  years   before,  and   as   bright   as  they 
came  from  the  j.re.ss,  were  found  in  due  time  stored 
away,  like    gold    itself,    in    the    chests    of    Canadian 
farmers.     For  them   the  bank   was  as   the   Hank  of 
Kngland.     A   position    in   its  service   was  a   post  of 
honor   and    consequence.      Its    luime    was    the    very 
synonym  of  strength.     The  confidence  of  the  public 
was  riMuforced   by   their  gratitu(h'.     The   bank    liad 
been  the  instrument  of  men  of  broad  ideas  and  large 
purpose,   ambitious,    enterprising,   hopeful    pioneers. 
The  good  they  did  lived  aft<-r  then,  but  at  the  timj 
of  the   bank's   (h'mise   it  had  not  reached  the  enjoy- 
able stage. 

Up  to  1857  the  Hank  of  Tpprr  Canada  had  grown 
steadily.  Dividends  of  (5.  7.  7.  N.  S.  and  7  per  cent 
were  paid  in  lsr.t>-Lsr)7.  The  capital  was  increase.l 
in  185:..  and  a  I2i  per  cent,  bonus  paid  to  the  old 
shareholders.  In  18.-.S  the  .apital  paid  in  amounted 
to  s:},  1 18.0()().  The  di  vhlend  that  year  was  8  p,.,.  cent, 
and  the  rest  was  reduced  i)ut  s4(>.(i(K>.  t(.  meet  the 
loss.'s  of  I8r>7.  For  a  bank  which  had  worked  in  the 
midst    (.f   the    land    sp.'cuhition,     had    undoubtedlv 


i  ■ 


V 


i.  i 


KIS  Thr  Cniiidiun  IlioikiiKj  S>/s/i't,i,  !817-18'.iO 

joined  in  it.  .ind  lost  heavily  when  ])r()i»('rty  taken  as 
additional  secni'ity  fell  to  the  lower  valnes.  this  was 
ntteily  inade»|Male.'  Their  mistake  was  recooin/oj 
1)\  the  directors  in  \^i\\ .  'I'lioinas  ( J.  IJidont.  cashier 
since  IS'i'J.  retired,  and  Mr.  lvoi»ert  Cassells.  a  hanker 
of  hij;h  rejMitation  and  eminent  ahility.  was  em- 
I>loyc(|  at  a  salary  of  sl().0(i,>  jicr  annum,  in  the  hope 
that  he  would  succeed  in  savinjjf  the  hank.  In  comi- 
pliance  with  his  sUH:uestions.  permission  was  oh- 
tained  of  the  Ie};islatui'e  t<»  reduce  the  paid  up  stock 
to  something;-  over  ><l  ,!l(K»,(i()(>.  the  i>ar  value  of  the 
l>aidup  shares  from  s.")0  to  s!J(>.  (25  Vic.  cap.  <'n{.) 
For  twelve  years  or  more  the  hunk  had  kei)t  the 
government's  account.  I)urin<j  this  time  it  was 
usually  a  considerahle  dehtor  to  the  Treasury.  Hut 
the  d(d)t  to  the  ^ovei'mnent  was  fixed  hy  an  Order- 
iii-Council  of  the  hJth  August.  IS():{.  at  si .  i:)().(iO(», 
and  transferred  to  a  sjtecial  account.-  Some  slight 
general  dejiosits  wer«?  allowed  to  remain,  hut  most  of 
the  Treasury  halances  were,  hy  Novemher.  trans- 
ferred to  the  Hank  (^f  Montreal,  which  hecame  hence- 
forth the  ji;overnment's  hanker. 

The  deep  rooted  helief  in  the  hank  entertained  hy 
the  jiuhlic  was  still  str(»ng.  hut  after  ISOdthe  monthly 
returns  ^ive  unmistakalde  si^ns  of  retrogi'ession  on 

'Twenty  yoiirs  ami  niort'  nl'ttM-  llic  event,  Si'iiatur  .MexuiidtT  re- 
vealed ail  iiicidfiit  in  furtlier  explanatiDn  ol'  the  hank's  hisses.  In 
|s.")S()r  ls:)'.i  (IieOiaiiilTinnU  Railway  Conipany  was  indelited  tncon- 
Iraetorstn  tlu-extent  i>f  a  million 'ioUars.  Tu emit ile  the  ("ompany  to 
pay  tliese  chiiins  tlie  hank  was  iinliiceil  to  make  advances  of  that 
amount  on  two  hills  of  exch;injre  for  uindjKiii  each,  drawn  upon  the 
iiail  way  Company's  London  hankers,  the  15arinj;sand  (Slyns.  These 
houses,  however,  had  closeil  down  upon  the  com|iai)y,  and  tiie  hills 
were  dishonored,  the  result  heiiij;  that  a  jiood  part  of  the  million 
wa.s  wholly  lost.     I 'td tales  of  the  Senate  of  ( 'ana  la,  l>;s.").  p. :;."). 

-Sessional  I'apers,  Canada,   IS()7<1S,   No.  JT. 


m 


t '» 


I 


Ftiihirr  iif  ///r  ll(i)ik  of  Cp/irr  ('iniinlii 


1G9 


the  part  of  llu'  hank  itself.  'I'lic  j^ciicral  Itiisincss  had 
fallen  <»tV  heavily  as  the  old  towns  in  which  the  hank 
was  estahlished  lost  tlu-ir  i»i(is|tei'it.v  to  the  centers 
^rowinj;"  uj*  in  the  new  industrial  disti'icts  and  alon<^ 
the  altered  routes  of  trade,  .\nothei"  cause  of  the 
reductions  is  to  he  found  in  the  etfoi'ts  of  the  new 
nuinii;;eni(Mit  to  j^et  the  husiness  down  to  a  solid 
hasis.  Its  circulation,  which  averaged  over  s'i.  100.- 
000  hetween  is:>7  and  IS(»0,  fell  in  Kidtruary.  lS(!i>,  to 
!!<l,(»5M'i.OOO.  and  in  Au^Mist.  ISC).'),  to  .slfSS.ooO.  Nou- 
interest  hearinyj  deposits  dr()i>p«>d  from  sj  .'.("io.ooo  in 
Fehruary.  IS<5-i,  to  st540.ooo  in  August.  ISO.");  deposits 
at  interest  from  s-i.('.44,O00  to  si. '.).■')< ».ooo:  discounts 
from  .sC.ISti.OOO  to  s:J.'J:!1.00O:  hut  tlw  landed  or  other 
l»roi)erty  (»f  the  hank  rose  from  s.")0:{.000  toSl.47:{.000. 
In  this  last  item  we  find  the  ])rime  cause  of  the  trou- 
hle,  the  collapse  of  l.s,")?-.")!-!.  in  the  real  estate  of  Can- 
ada West.'  Neither  in  IS(»4  nor  in  IStJ;")  were  any 
dividends  ])aid.  The  task  of  savinji^  the  bank  was 
hecome  clearly  imjiossihle:  s(»me  of  the  assets  were 
W(»rthless.  some  locked  uj)  in  land.  l->y  an  act 
ajiproved  the  IHth  August.  l!S(i('».  permission  was 
granted  further  to  reduce  the  capital  t<»  sl.ooo.ooo, 
in  fully  paid-up  shai-es  of  s-jo  each.  Before  this 
could  he  acted  upon,  the  hank  was  further  weakened 
hy  the  withdrawal  of  (le]»osits.  and  its  stock  f<'ll  to  ,s;{ 
per  shai'e.  The  loan  of  sloo.ooo  ohtaineil  fi-oni  the 
fi;overnment  on  special  securities  in  the  first  fortnight 
of  Septemher  was  of  sli«i^ht  avail.-  ( )n  tho  ISth  the 
Mank  of  Tppei-  Canada  stojiiied  payment. 

( )n  the  I'ith  November  the  bank,  by  the  consent  of 
the  sharehi>lders  in  j^cneral  meeting;',  was  assigned  t(t 
trustees.      Previously  to  the  l»th  of  the  same  month 

'See  Note  1.  iiii<;e  I7n. 

-Sessional  Pai)ers,  Canada,  18i)7-<>s,  No.  27. 


! 

I« 

f'i 

,  * 

■ 

' 

(  ■  ■ 


170  Thr  diniitilinn  liaukiwi  Sifs/ew,  1817-18(10 


!        :i 


14       I' 


Is'         '. 


'Tlie  coiiirte  ol'  llie  Itank'n  luisiiu'ss  cun   l>i'Ht  !•(•  jmlncil  Ky  the 
follow ii)>»  tiilili',  fur  i.s.i7  to  isiiii,  i'()in|>ile<l  from  tiif  ('•nuiilii  Hmfttc: 


% 


I 

s|>iri>i|  j<ii|iiK.i.i(ij 
.i<i|iiiii      ii.>|iri|,)ii| 

)lll|  >|llll(|         .M|l 

()|  .tup  Mii|.i|i.Mi|i(i 
-n!|is|l!il  tmiis,)io\ 


Vj 


•:  ~  r.  f.  •  i-r  I  -  lit  r.  -T  /.  T I  ic  :■;  I  -  c:  "o  •■:  /.  ■■r  ~i 
cfti-.y.  —  -i-r-r  —  T-ri-cciCTiTiy-i-  —  M^'C 
~  I  -  71 1  -  ~  ~  ti  I  -  1'  Ti :-  ri  -r  .  I  _  Ti  ic  /.  I-  it  rt 

-*  f'  ~l  z'.  —  -  —  ~  ~-  r.  "'  sT  rf  y.'  I  -  I  -  ■:  i":  ic'if'io*  1 


M  ■ 


—  •*  -r  y.  I  ■ 


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H?|mii|  .i.)i|)ii 

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is'i  -- 

I  .^-j  S>|III1(| 

'S     .l.Mfio  JO  si|!()  .111 
"      St)l(Ml    .Vji>sk|iiiii.i,| 


_i-*i-y:i-i-c  :  z  z  r.  t.  ■fj'ii\ 

^  f'~  '■£  r'l  -2  ^  '.:>■"'* '  '  1 

'*■■:-.  c  r.  -f  I-  r.  r. 

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-r  7 1  —  T  I  -r  -r  ~  t:  I  -  1 1 1  -  ■.-  -»  -r 
•c  I"'  .;*•.;'  — "  "c  -*'  -f' ::' ::'  'i  rlri  ?i 

r.  :■;  "♦"  I  -  —  ■>:  ic  .;  -T  I  -  I  -  v:  *  I  T I  :*  ■  -  :■;  1-  ■:  I  ,;  It 
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c  1  -  ,:  -c  -  c  _  ti  it  -T  -r  :t  ri  -T  —  —  — 


jft  1 1  :t  It  c  —  1 1  c  T.  't^  'I  I  -  ~  I  •■  z  z  /.  \  ~  z  J.  c  — 
~\  — ■riti—  rici —  — 


&-5:' 


s  ** 
Hi- 
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c  — 


CO  —  '..:  cc  I  -  y.  r.  f  -c  I  -  tt  ::  I  -  c;  :•:  :t  I »  '^  ;£  ;r  c 

s.iill.i         n^.. '.-  -f  3"  ^  ;j  /•  —  — z  z  z  z  z  z  ~  ~  ~  ~  ~. 

-n.t.is  lu.iiiiii.r.iAdii        ■  ti  ct  C".  It  -  ti  ^5  :t  :t  :■:  ti  71  ti  ti  ti  r  1  — 


>|iiiii| 
tii|i  ,|o  .(mikIo.iiI 

.Ml|ll)     .1(1     |l.l|llllf| 


i  -  71  -1-  ::  c  -f  r.  ir  •/:  t's  -r  r   r:  71 1-  :•:  it  71  rt  — 

if.-r'y.  z  7 1  ->■  It  1  -  •/.  7  1  z  —  z  :7  :t  /■-  -z  t  —  ?':  I  -  I  - 
7 1  7 1  7 1  7 1  ::  ::  -r  it  I  -  y    /.  r.  7 1  -r  -r  it  '-  —  '— 


!        71  It  —  -  I  -  cr         -  ^"  I  -  •.;  tt  It  ?:  —  It  71  If  I  -  -r  5 
ii«.!Iin(ii)miii!(..»     ««':;  !^  -  X  .- .,       ^  i^ '5  *J  ,^  j^.  =  i;  ,T  -  ;t  ^  ;^,  £ 


«'>U!l!'l»!l  I'Moj, 


c  c  r  7  I  ft  ::  r.  r  It  -r  -r  -f  /■-  ;t 7i  o  it  1.^  ci 

(ft  :t  7 1  ^  ~.  /  -T  1  -  7 1  -.r  1-  7 1  r;  1  -  7 1  ~  c  1  -  7 1  Tt  It  o 
It  7 1  X  —  c7  —  It  —  :7  -r  .;  It  oo  I  -  T  —  :t  v.  I  -  If  f 


i  It   71  Z. 

:7  -r  '.^  it 

7  It  it  C  1  -  I  -  'C  I  -  1  -■.;■.;  C  'C  It  It  It  -r  :7  :7  70  7t 


IX.Ui))!'!  ^111.11101) 

p.))!st)il.ip  i|-^ii,) 


7 1  —  "C  ~  :7  it  r.  V  ■ r  z  '■'.  ~  T.  t  •  ::  T-  z  z  -r  ~. 

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71  —  —  71 1>-  It  77  It  —  tc  c  ic  It  •  1  -  -r  r.  r.  'X.  \~  'i 

—  tT— '  71' 7r:7"  71  7?  71  71' — '  71  7f  — '  — T^'—  —' 

_  „  71 1  -  71  It  A  It  v:  r.  —  o  =  »  71 -j: -t  «c  r  71 1 — 

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-  U<         M-T!  I  —  —  —  71  71  71  — .  71  71  —  71  —  71  71 


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-iijli.U!.)  Ill  s.>|i>\; 


III  pniil 
j(.)<ils  |iu|ilii.» 


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>:7i-T-r-r—       :7 i-it-ri-i-i-  —  :7'T-" 


It  71  —  r.  ~  "C  I  -  If  :7  •  1  -  71  —  I  -  ;7  ~  x  ■T  cc  :7  -f 

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tf  71  71  71  71  71'  ti'— '——*——'—'—'  —'  — 


C  CiCCitlftCC  Z  Z  Z  :'.  '-A.  Z  71  —  1-1- 
it  lO  Cf  —  QC  T  7  I  1  -  _  -.r  -f  C  If  r  Z  f.  A. 
7I7I~.  I'l-T7l:771X-T'ft'lr.—  -r7l7'l 

^■-  —  z  y"  -r"  I  -  z  •£  x"  ■£  z'.  —  —'  7  r  a'  7  i  -^  r^  ~' 
r.  —  —  71  71  :t  77  ::  I  -  «  c  —  7^1  7^1  r;  ^  r:  r: 


■  t  ift 


it^  u, -■  6t^"  u—"  u^"  u^'  tt^'  M,_f  SI  j:!  >.  u  - 

I    I       I       I  I  I  I  I  I  I    '       ' 

i-x        —         -  —  71  :7  t  It  'C 

If  if      it       '3  c  ;i"  'Z  _  ■.:  ■»                I 

X  OO         A           A.  A.  X  A.  X  /  ■/■                      ' 


rii    ^; 


/'(lilnrc  uf  thv  liotd-  of  Vppn-  Camxlo  \%\ 

reductions  from  the  uv.raKf  liubilitirs  of  A.iKU.st  Jiud 
been  effected  as  fc.llows: 

HMI.(l0.iiiiiii,..l)  for  Ainf.,  A.  lii.il  (M,ii.|lii..ii.  ,,    ,      .. 
I       \m\                    mil  Nov..  INtiii  •  KfOiuli.m 

N<.teK  in  ,.irr..!„finn ijsta                             K'"^                *.„ 

Halaiiccs    due    to  ..tli.i  '• 

„     '"'."'<« WW                               •.,„,                 ,.- 

iH'posits  not   Itearing  in-  " 

tert-Ht -,-|      I                           ,,,|. 

DejM,sitHl.i.arin^Mnt.-n>Ht       I.;:.)     M„M„,b.Gu.i     I.Hi'.;  '«« 

Wliicli  was  evidently  i.n.vided  for  as  folic. ws: 

Coin    and    Hullion,    or 

'•ash   in   hankH %-l\-\  ,44.,  .      , 

Landed    or    otiier   pro-  ^-  " 

,,     i'^''ty 1,(17;:  I  (i-.j 

t;ovt.  .sonirities i!.,i  ''     -  ■:., 

^•>teaHnd  hills  of  otlier  ' 

I'anks ,;| 

I'.alaiici'H.Inffioniotiier  *'' 

^.     '"'"ks L.,; 

Notes  and  hills  fl'.illBan.l  '■■  ^ 

disconntt'd..     >;:.',48K  j       i  n  li  .- - 

Other    deh.s    d„e  ,|      ,'nent;.  ...L-5 

to  the  hank..       H74  |-(Uailwnv.v 

•'t.^i'il.'     I      othi-r 

I      l)onds..        \S'ii 
(,  Mort>;aj:cs      di' 

-     -     -  %-l,\\'l-l  l.(i.|u 

*■"'.'>"">  ^4.(i.'.(i  $].. -,()., 

Th.>  statement  for  the  l»th  X..veml.er  may  be  taken 
very  nearly  to  represent  the  cnn.lition  of  the  hank  at 
the   time  of  its   failure.      F.i,,uidati<..i    of  the   estate- 
proceeded  .slowly.      In    Deeemher,    isr,?.  th,.  trustees 
were  incorporated,  ami   provision   n.ade   for  the   ap- 
pointment   l.y    the    -overnmrnt   of  tw.,    trustees     to 
represent  the  interests  of  the  creditors,  and   of  ..ne 
hy  tho  shareh..Id,.rs  to  art  in  their  behalf.      (;;|    Xj,.. 
eap.    17.)      The  three   new    trustees   took   hold   of  the 
estate  on  the  lOth    March.   IHI.S.      I„    hccemher    th.-v 
reported    tliat  no  steps    ha<l    been    taken  to  enforce 
the  double  liability,  and  that   the  apparent   Muplus 
of   as.sets    ..ver    liabilities    had     l.c-n    n-ducd    from 


\m 


'  ii  % 


% 


h  :f 


1 1 

|i| 


1^ 

ill 


17>'  '/'/"■  ('iiinn/i,ni   l{iinl,ln;i  Siishiii,   IHIT-IHIM) 

!i<I.:{7:».7'.»7  in  M.iivli  to  !i<47T.I(5l  «.ii  tlir  :tlsl  DtM-cmlicr. 
tlin»ii)^li  tilt'  t'ollowitiu' u|)(.f;itinMs: 

Written  oil   hh  ii  ii'cov  i-iiihlo  ilt'litB $(lL'l<,n7(l  ."»I 

liUHsi'B  (III  laiiils  iiHHi^iuMl  to  <ilyn  <V  <'<>.  aixl  sulci  liy  tlitii 

■{"rustic's   lll.tMs  S7 

Nt't  loss  on  liiixls  Kolil  l)y  tli«>  liiiiik  nt'  t'|i|i«'r  ('Mimilii 

'I'nistei's '.•;;,» 1 1  s:'' 

Sundry   items 70,i'-.'8  34 

iJ.siW.c,:!.-)  ,V> 

This  'oss  liiid  Im'»'ii  iiicun<Ml  in  rciili/iii^  altout  .s:{()7.- 
'.H»S  u]ioii  si /,>('•(•.,«;:<:{  of  the  assets  as  they  had  hvvw 
valued  ill  Marcli.  It  was  exiu'ctt-d  that  s|. Oil). (»()(>  of 
hills  and  judj^incnts  would  i»roduce  some  s.")i:^(iO(): 
that  teal  cstat*'  valued  at  si)7i).ooo  would  net  say 
s;»ss.(i(Ki.  A  deticiency  of  nearly  >5r)0( ».()()(»  would 
jifohahly  occur.'  and  the  trustees  heliev«'d  that  the 
tiust  could  not  he  profitahly  closed  ujt  hefore  five 
yeais.  Meanwhile  it  was  t-ostiuH;  the  estiite  !?I4.'i80 
a  year,  hesides  the  interest  on  certain  outstanding 
dehts. 

••No  cieditor  of  the  hank  has  heen  paid  the  amount 
of  his  claim,  eitlu'i-  in  full  or  in  part,  exceptiufjf  some 
trifling-  sums  that  could  not  otherwise  he  disposed  of." 
the  trustees  reported.  Accordinj;"  to  the  deed  of 
assignment,  they  were  comjielled  to  receive  claims 
aj^ainst  the  hank  at  tlu>ir  full  value  in  payment  of 
dehts  due  to  the  hank:  hut  as  an  inducement  to  facil- 
itate the  ne^-otiation  of  real  estate,  after  the  10th 
.March.  1S(»S.  claims  were  received  at  from  (»(5  to  7.") 
per  cent.  (»f  their  par  value,  in  ])aynu'nt  of  lands 
taken  in  settlenu'Ut  hy  the  hank's  creditors.-  The 
trustees  continued  their  opt-rations  until  the  whole 
estate  and  powers  vested  in  tlu'in  were  transferi'ed 
to  the  crov*n  hy  an  act  of    1870,  approved  the  1:2th 

'Sessional    Papers,  lS(i!»,  no.  (1.     Correspondenee,  Bank  of  Upper 
Canada. 
-  //>/(/,  p.  »;. 


Ftiihirr  i,f  Ihr  lliiiik  of  I'jipn-  Ciiixnlii  IT.'i 

Mjiy  (:{;{   Vjc,   cap.  i-jo).     'n,,.   to||(,wiMK  taM."   will 
indicate  tJH'  pn.^rn.ss  of  the  li(|ui(latioii  down  t(.  iS.s-J: 


1^  %^ 


•r  ^  ^     .    1    i    ?     * 


.  —  Tl 


'^.  A  <  :  "=  •-.  1 7-  'f.  • !  -.     T-       M    .  A  -^.  -.  :.  ■>!    =. 


-    .  n  •— 


--  ■_    .  c 


c 
tr. 

c 


4,  jj  =  i      y"  I  "  :  r  r  '^    ;  ;t' 
bi-  I     *'"  :  "If,  •© 

:  I 


=  5* 


I     •    I 
I     •    I 


i     !     ?l  :  '--'.6  ■{-. 


k 


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c 

a 


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-  *-•  7         </-•  •  •  — 

'ij:"  i--:r 


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-  i-r.       ■»— "t-    •  .-■  ,c     ; :-" 

"".J—  1"  —    .  ct  ri    .  I  - 


c  /.^Ji_  ? 


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e 

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«^ 

r.  /  -r  —  - 

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2^:  Ti  71 


7  1  -      •  7  I  f 


—  7171     ,  I  -  t7 

It;  'Z  iJ-.      .   Z  '.: 


-r~.£_^Jt^  ]  Z~  t  '^  %  I 
i:  i  _H.  =  •—••—•  i  ^  X  •/  *  5  "^ 

¥  —  Ti  :7  -r  .-■  -r  r  :  /  r'  =  ;f  7  i  :7        — '       i;  i-'  r  i  -  /.'  r  c  — 


—    5     2 
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I  M 

/   1     3 

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'/'//»•  l'<niih/iini   llinii-liii/  Si/sfriii,   \A\'1!-\H<\0 


It  ;i|)|)rai-s  t'l'oiii  this  tliat  tin'  liiiliilit  irs  of  i\\r  Itank 
to  th<>  ( 'aiiailiiiM  |)iil)li(- 1  (h>|Misits  aiui  imtc  c-iiiMilatioii) 
sluuil  ill  Xovciiilit-r.  iSCiC).  at  si .  I  I7.S*J«».  ami  wcr*' 
l-cdnci'd  liy  tlic  riid  of  iSfiS  (o  S-iriS.."»f^:i  (iiicllldilij;' 
(■(•It  iliralfs  of  t|t'|Mtsif  issiii'd  l»\  tnistccsi.  by  iSToto 
slt'.t.jC.j.  ami  li.v  ISS-j  to  s:).<i(M»  (cstiiiiatcd).  Tlic 
;;i»vrriiiiiciit  cdiit  iiiiicd  to  itdrfiii  its  liahilit  ics  at  ?.'» 
rriit>  oil  tlir  dollar  aftt'i-  tlic  |>ro|Mriy  was  vested  in 
t  III-  ( 'rowii.      Sii|»|iosiii;^-  t  In-  icdciii|it  ions   ]»rc\  ioiis   to 

h( iiilMr.   i>tis,  to  liavo  Imtii  at   tin-  avrra;;!'   rate  (»f 

7(1  |tfi-  ci'iit..  ri'^anliiij^-  only  tlir  direct  capital  loss, 
and  inakiii;^-  no  aljowaiice  tor  the   e.\iia    discounts  to 

which    needy    note    holders  ol-  depositors    were    ohliy;e(| 

to  siihinit.  I  calculate  that  the  ('anadian  creditors  of 
the  r.aiik  of  rpiier  Canada  lost  at  least  siMo.'HK)  |,y 
the  t'ailnie  The  stockholders  lost  the  whole  of  a 
••apital  which  was  once  s.'l.  I  Ti'jkki:  t  he  ^ov  ernnient . 
ami  throii;;h  it  the  taxpayers  lost  all  hnt  Sl.'iii.Odii  id" 
deposits  amount  in;;'  to  o\  fi-  s| .  I  "jO.imio  i  |.'u|'  pioprie. 
tors  and  iieditois  comhined  the  result  <d"  the  failure 
was  the  disappearance  of  a  principal  which  cannot 
he  ir(d<oiied  at  less  than  tise  millions  of  dollars,  a 
snin  e(pial  to  17  per  cent,  of  the  entire  hankin;^"  capi- 
tal  of  the    province.      Such  a  loss    to    the    ('anada   «»f 


tal  of  the  province.  Such  a  loss  to  the  ('anada  «»f 
those  da.\s.  and  to  Canada  West,  where  the  larger 
amounts  were  iiiv(dved.  was  not  merely  severe;  it 
was  enormous. 

<  hie  of  the  (pii'stioiis  su!.cy;eslet|  hy  the  facts  I  have 
recoiiiiti(l  is.  Why  ,vas  not  the  doiihle  liahility  of 
the  sliai  ehold.'rs  enforced  r  I'nit  the  true  answer 
will    Dot   he  foiiml    in    the    docnmeiiis.      '['lie    trustees 


Si'S'-iuiiiil    l'il|M'ls.  C.imi'l;!.   I"^S'.\    N,,.   Ins  n. 


I 


/■'tii/inc  of  //ii  Ihnik- of  I'/iper  Cuniidii  1  T "> 

irpurttd  oil  tli<'  three  llioiisand  shareholders  in  |)e- 

ceiillter.   liStJN,  thus:' 

Kx»M'iiti\cs,  Kiiui  lians  aixl  iiiinorH $  1 1.'9,. ".•'.(• 

'rni«t«'f.s .';;!7,''nn 

Afiinicipiilities ll'.SKi 

KctiialfH  aiiil  j  iTfuiis  livinjr  :il)i'iia<l .  •"is'_', Iti5 

HeHiileiitM  in  (  aiiaila,  nut  ki '.wii I7_',JL'0 

lielieveil  to  lie  luiil 1:!',i,!hi(> 

"          "         "         inclinliii).' females,  liclit'vcd  tu  !((•  ;.'()i)il  "hc'.SHO 

^I,!t:{!t,s45 
It  is  true  that  loss  had  fallen  iijion  many  of  those 
least  aide  to  hear  it.  widows,  orphans,  women  and 
a<;'e(|  in\estors  of  small  means,  who  had  put  their 
little  all  into  the  stock  of  what  was  once  the  o-ovein- 
nient  hank,  and  suddenly  found  themselves  strijijied 
hoth  of  prin<-i|)al  and  income.  It  is  tiur  that  tlif 
j^dvcinmenl .  as  the  huj^cst  creditor  of  tie-  hank,  had 
secureil  the  --oitinion  (d'  the  hesi  Ic^al  authority" 
that  any  coutrihution  fiom  the  shareholders  under 
the  douhl)'  liahility  clause  could  not  he  i-nforced  hy 
law  until  the  entire  estate  had  i»een  realized.  Koi' 
that  process,  it  was  thouy;ht.  in  IS)5S.  that  live  more 
3'ears  would  he  needed.  It  is  also  inif  that  the 
j4;ov«'rnment  carefullv  ahstained  from  an  elfoit 
t(»  secure  judicial  decisi(»n  upon  the  (piest ion.  .\nd 
tilere  is  no  douht  that  the  government  id"  the  years 
in  which  the  Hank  <d"  I'ppei-  Canada  was  still  sol- 
vent, an<  I  the  knowledge  of  its  losses  had  not  i  <a(died 
the  puhlic.  iiavin;^-  the  hank  at  their  mercy  in  conse- 
(luence  of  the  ht'avv  imlehtetlness  t(t  the  Treasury, 
ahused  theil-  po>iti<in.  and  <-ompelled  the  hank  to 
make  many  ailsances  \'>iy  political  reasons  which  re- 
sulted   in    very    heavy    losses.-      It  is    nut    denied,    (d" 

SfSHJonal  l'ii|ii'iH,  |st>!i,  No.  i>,  \>.  '•. 

'  I  ill)  \\n\  iM'cti'nil  to  I'itt'  till*  tloiMuiii'nts  lur  tlii.s  or  fur  a  nunilxT  of 
otliur  .stati-nients  iria<U>  in  relation  tu  the  Itankof  I'lipcr  ( 'ana<ia;  hut 


I; 

PI 


■I 


r!i 


( 


17G  Thr  (\imuliitn  li<i)ikin;i  Si/sfrm,  1817-lHfh» 


^i> 


I  V.1 


K       !■ 


(•(Mirsc.  tliat  there  imisl  luive  Iteeii  ji;rave  niisinaiui^e- 
iiieiit  to  Itriii};-  tlie  l)aiik  into  a  eoiKlitioii  in  wliie.i  it 
had  to  suhiiiit  to  siieh  (leinaiids.  or  that  the  eliiet' 
cause  of  tlie  failure  was  the  collapse  in  nntario  in 
JJ^.'iH.  'I'here  is  no  douht  that  all  four  factors,  the 
contril)Utoi\v  resjtonsil»ility  foi-  the  failure  which  th 
j;«)Vt>rnnient  <-onld  scarce  avoid,  certain  |»oliiiciil 
niotiv<'s.  ne\.'i"  vet  i-evealed.  (d"  the]tart\  in  power, 
the  distresse<l  condition  of  nianv  shareholders,  and 
the  opinion  of  the  <r(ivernnieiit"s  leual  advisers,  com- 
hined  to  jucvent  the  efTort  to  enforce  the  douhle 
liahility. 

Instead  treinemlous  efforts  were  put  forth  to  pre- 
vent a  full  iiKpiirv.  attenipts  were  made  to  silence 
the  ]»ress.  ami  they  were  not  without  success.'  The 
liquidation  under  trust<'es  was  costly,  ahsoihin;^-. 
in  all.  some  sKO.odo  a  year.  The  ^overnnu'nt. 
although  the  largest  creditor,  hati  received  no  divi- 
dend on  its  (daiin:  the  assets  were  insullicient  to 
meet  the  li." Idlit ies  of  the  haulc.  liui  it  was  thon;;ht 
that  the  ^'overnnient .  liavin;;  no  tr  ;es  to  pay.  and 
heiuj;'  aide  t(i  wail,  would  succeed  •  seen rinj;'  more 
from  llie  re;il  estiitc  than  <M(uld  lie  had  by  private 
nianipulal  ion.  .\ecordin};ly  the  act  of  |s7i>.  ;ilreiidy 
m<ntioned.  w;is  passol.  In  1^71  not  mni<'  iluin 
.s*i.")(l.(Hi(i  wcri'  jilaced  at  I  lie  disposal  o|'  |  he  ( ii>\  ci- in. r- 
in-Council  to  pay  otf  claims  u|ion  (In-  hank,  provided 
its    assets    contained    ample    security    foi'    reimlmrse- 


:■;» 


,''f 


l1   "■• 


I  lia\  <' t  lii'iii  1 1 1)111  ('(iiiti'iii|<ui  ,11  V  Milt  liMiii  it's  as  crt'iliMc  ii'- i'\  ist  in 
the  Uuiiiiiiiiiii  ol  ('aiiiiil:i,  ainl  iiiciiilicrs,  hhihc  uf  mic,  sunn'  ol 
aiKillit'i'  party.  Many  uf  tlic  liaiik'.s  Imcks  were  ilcsti'uyt'cl  alter  tin* 
failure,  .'iiiil  le^'al  evi'leiii'c  of  the  inisili liii^rs  referred  tu  i^  iini  pru. 
eiiralile.  \  ery  feu  of  tlinse  ulincuiil  1  .speak  f  ruin  pel  suiial  kimwl- 
eilj;e  are  iiuw   living'. 

^  MiiiictiUji   TiiinK,   \nl.  iii.  p.  I'Jn. 


H  i 


The  /'roriiiritil  \»/r  .1/ /  o/"  18»'.(*, 


17^ 


mciit.  {'M  \'ic..  cap.  S.  I  KItvcii  \  i-ars  latci' sr>.(MKi 
iiiuii'  were  siiiiilarlv  voted.  The  (•(Hiisc  of  thcsultse- 
<|ii<'nt  li(|iii'lati<>n  is  t'aiiiiliar.  It  rt'inaiiis  now 
incrcly  to  I'cinark  soriif  of  tlic  valiialili-  rlVrcts  of  tlu' 
failiiii'.  Illiiid  |io])iilar  hrlirl'  in  tli*-  salVt.v  of  Itanks 
as  hanks,  was  rurrcctcd.  and  a  iiopnlai'  <Tit ici>in  was 
(Tt'attMl  and  tlicrcaftrr  applicil  to  tin-  niana;;cinrnt 
ami  acciMints  of  tlif  lianks  whicli  served  tin'  province. 
To  managers  and  directors  it  ^ave  a  wlndesoine 
warnin;^'.  not  only  to  look  to  the  inner  or<^'ani/ation 
(d"  their  hanks,  hnt  also  to  K"i>''d  a;,Minst  loans  what- 
soever on  real  estate  secnrity.  Finally  it  opened  the 
way  for  two  or  three  <-leandninded  yonnj;'  hanks, 
who  Were  destim-il.  pai'tly  in  tilling  the  rp|tei- 
Canada's  place,  to  take  rank  anions  »he  leading 
hanks  id'  the  |)oniinion. 


ill 


fll. — TIIK    l'|{<>\  IS<I.\I,    SoTK     \(   I'    «>l"    IStiB 

The  i^overnnient  in  whiidi  the  lionorahlr  (after- 
wards Sii-i  A.  T.  (Jail  acted  as  Minister  of  l-'inance. 
was  (d)li^^e(l  in  IhC.C.  to  raise  some  s.""),0(MI.(mm»  to  dis- 
charge the  lloatin;;'  deht.  The  credit  of  the  |iro\  ince 
ha<l  snll'ered  in  tin-  l'lny;lish  market  onacconni  of  the 
renewal,  from  I  iirie  to  t  inie.  of  t  he  halam-es  in  arrears. 
The  M  inisler  a\  erred  thai  I  he  ( 'unailian  hanks  were 
iPi  Willi n;;'  to  extend  1 11  I  lie  ;;u\  erninenl  a  lo.in  ;iniiuin!  - 
in^'  to  I .'(  per  celt,  of  th'ir  capital.'  The  I'.ank  of 
Minitrciil  wa»  alreadv  a  eredili>r  for  s-J.'Jjo.nod.  and 
was  pressin;^"  for  paxnient.  Tin-  ;;iivernnient  would 
not  trust  to  the  chanee  nf  nieelin;.;  the  eni;a;4«inenls 
■  if  the  country  li\  lar;^"'  lo.nis  al  hi^ch  rales  of  inler- 
csi.      "'I'ln'  ;;o\  crnment .  "  said  Mr.  (ialt.  ••should  ic- 

'i\iri'\i\i>  (il<'l/f,    Itli  All>rll^*t,   l^i;<:.  <)n;i\v;i    Tilnfy.    nil    ,\u^'ll.-t,  l-^ti'l. 


i 


0  |i 


if 


f' 

.'\ 

i 

e 

l! 

i 

a- 

178 


77if  Canailiitn  lUuikinij  Si/s/cm,  1817-1890 


sumc  i\  portion  of  tlir  lij^lits  which  Ihcyliad  doputt'd 
to  others,  ,;.ti(l  meet  tlic  lijihilitics  of  tlie  coimlry  with 
the  ciirroMcy  wliich  ht'ioiij;(Ml  to  it."  In  sliort.  he 
jicknowkMlj^ed  the  primary  cuus"  of  all  papci- cui-rm- 
cies  rinittod  l»y  «4'ov('rniii(.'nt — government  needs. 
But  he  professed  to  offer  to  t'ai'liument  the  choice 
betwt'en  issuinjif  two-year  debentures  at  7  per  cent., 
receivable  for  public  dues,  and  establishing  a  uovern- 
ment  currency.  The  offer  of  the  alternative  was  as 
insincere  us  his  solicitude,  in  ISGO,  foi*  the  security 
of  the  bank  note  circulation.  It  was  asserted  in 
Parliament,  and  not  denied,  that  note  j)lates  had 
been  engraved  two  years  before  the  bill  was  intro- 
duced, and  that  cleiks  wi-re  actually  engaged  in  sign- 
ing the  notes  whih'  the  l>ill  was  undei'  discussion. 
The  i)roposal  to  issue  debentures  was  a  sham  and  a 
delusion.'  Furthermore  the  Minister's  justification 
of  his  real  plan  was  unsound.  For  those  who  wish 
it  the  discussion  of  this  contention  will  be  found  in 
the  note  at  the  end  of  the  chaptei-. 

In  Canada  a  jn-oposal  to  establish  a  provincial  mon- 
opoly of  the  note  issue  would  have  conflicted  with 
the  convictions  of  a  people  inveterately  suspicious  of 
all  monopolies  and  taught  by  long  yeais  of  colonial 
struggle  to  be  pai'ticularly  Jealous  of  the  executive. 
The  Minister,  accordingly,  did  not  dare  to  jji'opose 
the  complete  and  instant  abolition  of  the  bank  note 
currency  used  by  the  people!  for  forty  years.  J^ut  he 
had  his  party  behind  liim,  he  had  pressing  demands 
to  meet,  and  he  lacked,  apparently,  tlie  courage  to 
borrow,  at  the  market  rate  of  interest,  the  necessary 
funds.  Shorn  of  the  fallacy  and  verbiage  with  Avhich 
he  intro(hiced  it,  his  plan    was   simply  to  extend  the 

'Ottawa  TifHen,  4tli  Deceinher,  18(>7. 


l^    . 


'I'lip  /'rorinrnf/  .\nff  Ar/  ,if' ]SM 


179 


activities  of  tin'  ^ovcninu'iit  i..  the  ('••oiKHiiic  (icM,  l»y 
(issuniiiK/  the  lij^lil  tt»  issur.  iniilcr  tlic  iiutliority  of 
the  (lovcnior  in  ("oiincil.  not  nioir  than  ^S,(M)().()(M»  of 
provincial    notes,    puyabh'   on   tlcniaml    in   specie  at 
Toronto  or    M»tntri'iil.  as    they   ini;;ht    be   dated,  and 
k'fjjal  tiMuh'T  except  at  those  otiices.    The  act   |-eci'ived 
tlie  royal  assent  the  ir)th  Auj^iist.  ISdC)  ('JU  \"\r..  cajt. 
10.)     The  compulsory  gradnal  retirement  of  the  hank 
notii  circuhition  pi-ovided  for  in  the  (iri}4,inal  hill  was 
struck  out  in  the  House  of  Commons.      Partly   in   its 
stead  were  adopte(l  jM'ovisions  for  ///</'(c///f/ the  hanks 
to  surrender  their  circulation   and   take  up  the  issue 
and  redemption  of  provincial  notes.     The  considera- 
tion offei-ed  was   the   payment    of  tive    per  cent,   per 
annum  on  the  amount  (»f  notes  oiitslandin;,^  the  :{()th 
April.   IS(i('».  until  the   expiry    of    the    charter  of  any 
hank    which  mi;.;ht    accept    the   condit  ions  of  t  he  act 
and    withdraw    its    own    ciiculatiou    hefure    the    1st 
January.    ISdS.    compensation    to   he  paid    from    the 
date  of  sucli   withdrawal.      Kor  the  service  of   issue 
and  redemption,  oue-cpuirter  of  one   |!<'r  cent,  was  to 
hi'   paid  at   the  end  of  every  t  hree    months  ujjon    the 
averaj^e  amount   outstanding::  durin;;'   that   |»eriod  of 
jM'ovincial  paper  issued    l»y   the    hank.      .\s  a  further 
inducement,  hanks  j;ivinj^  up  their  issue   rij^hts  were 
accorded  exemption  from  the  ohlij;ation  to  invest  ten 
p(M'  cent,  of  their  jiaiil  up  *-apital  in  provincial  dehen- 
tures,  and  wei'c  allowed  to  exchange  I  hem  at  par  for 
])rovincial  notes.      The  last  was  the  offer  of  a  decided 
l)ar<;'ain.  for  dehentures    were  then    worth   not    more 
than  S:{.      The    lieceiver  (ieiiei'al  was  ohli^^cd  to  hold 
specie  for  the  re(iemption  of  t  he  notes  to  "in  per  cent, 
of  the  (-irculation   under  s."). ()(>(). (K»(),  and  *_'.")  per  cent, 
for  the  circulation  in  (excess  of  ^r), 000. (>()().      He   was 


18(1  'Hie  Camntiiin  limikiiKj  Siislnn,  18ir-1890 

to  issiu'  and  lioltl  provincial  dclicntun's  for  tlit-  full 
amount  l)y  wliicli  the  reserve  <»f  specie  should  fail  to 
cover  tile  circulation  outstatidin;^.  Procef.'ds  from 
the  issue  operations  were  to  he  tnrneij  into  the  Con- 
solidated Revenue  Kund.  and  e.\p«'nses  lawfully  in- 
curred under  file  act  were  to  he  eharj^«'d  upon  it. 
The  h'l'ee  Mankiii;;'  Ai-t  was  repealctj  save  as  to  the 
privilege  of  issuing"  one  and  twodulljir  in)tes  eiijoved 
undei-  it  hy  the  I5ank  of  l'>ritish  North  Ann  lica.  and 
all  the  chartered  hanks  wei-e  ridieved  fiom  the  pen- 
alties retaini'd  in  the  act  of  IS.'iS  for-  takin;;-  interest 
ah«»ve  7  per  cent .' 


h    I' 


m 


I 


i  '  f 


i«  •(' 


{jH'J.  — Ki'i'Kcrs  oi'  THi:   i'ia>\  inci  \i,  notk  act 

'i'he  condit  ion  of  the  money  market  and  of  trade 
in  the  autumn  of  isCiti  was  such  thai  all  hut  one  i^'i 
the  hanks  were  nnwillin;;'  to  lediu'e  llu-ir  resources 
hythat  retirement  td"  their  notes  from  circulation 
whi(di  accejitance  (d'  the  j.,ov.rnment's  offer  wuuld 
have  rendered  necessary.-  That  single  hank  was 
the  l>ank  of  Montreal.  As  fast  as  it  witl.drew  its 
own  notes  it  was  aide  tu  replace  i  hem  hy  notev  of  the 
prosiiiee.'  These  were  set  < df  against  llie  tvvi(  and  a 
(puirter    millions   ciwrd    hy  the   i;o\  crnment .  the   pre- 

'  I'll  CSC  pciiall  It's  were  I  lifsr  iiii  |mi>ciI  liy  tlic  .Ads  il  <  icii.  II  I ,  cjiii, 
",  I'.  (".,  iiml  17  (i»Mi.  ill,  call.  :;,  I,.  C,  viz  :  lur  tiikinj:,  c^aciiii"^ 
ai-ci'|i|iiin  or  n-cciv  iiiL'  iiiliicst  almvc  tiir  aiillinr  i/cl  rau-,  lurfti- 
twrc  iif  tliiicp  till"  value  of  the  iimh  'V,  jrooil.-*,  waicM  i.f  lucicliaiiiiisc 
sent  or  liaijiaiiicd  fnr,  niic-liair  tu  iiif  Crowii  dalfi  In  llic  .^iiiiipnit  of 
tlif  cix  il  j;ti\  iTimn'iit  iif  tin-  jifiix  iiicc),  and  mif  half  l<i  tlic  ikt.wmii 
suiiii.' tliurufiir.  Sii\fi<  IHini  the  niily  Htaliitnrv  restriction 'i|)'iii  tiie 
rate  nf  interest  cliar'_'eaMe  \i\  tlie  liaiikn  lias  Ikcii  llie  iM|rissiliilil y 
uf  eollectinir  at  law  the  excess  ahose  le^'al  rale. 
I'arlianientaiN   I'el  iites.  <'an.,  vol.  i,  p.  Sd'J. 

'.Iiiiirniil  i>f  the  Senate,  Canada,  lMi7-tiv,  Appendix  I,  p.  7. 


'I 


h'lf'irfs  nf  l/ir  I'rnrinriiil  Sntf  Art 


181 


vioiis  lockiii^c  up  of  wliicli  may  he  iircsimird  seriously 
to  hnvt'  cripitU'il  ihr  opcrjit ions  of  the  l»iiuk.    Or  they 

may  liavcl u  obtained  in  excliiin;;*'  for  the  sOoojkk) 

of  (lel)entures.  worth  iihout  ^;>.  formerly  lield  hy  tlu' 
Itank  ih'cordin^  to  charter,  hut  mow  redeemed  hy  the 
{government  at  par.  The  position  of  the  Hank  of 
.Montre;il  was  untpiestituiahiy  imjM'oved  hy  the 
chanj^e.  Xearly  tiiree  millious  of  assets,  wliich  for 
some  time  had  heen  unaviiihilde  for  immediute  pur- 
poses, were  |)nt  into  litpiid  eonditioii. 

The  effect  on  tile  total  cir<'ulation  in  the  hands  of 
the  puhlic  durinj;-  the  tirst  year  of  the  Mank  of  Mon- 
treal's operations  under  the  act  was  iru-onsiderahU'. 
It  received  compensation  upon  ><:{.  llJd.SJS.  tin-  amount 
of  its  nutstamlin^  issues  on  the  l{<Uh  April.  1S(5(5; 
from  Novemher.  iStWi.  to  the  :51st  |)ecemher.  18(57, 
the  iiverajjfe  of  pro\inciiil  notes  in  circulation  was 
$:{.  147.  ISO.'  The  protit  to  the  n'oveinnient  during 
this  jteriod  and  the  following'  yeai"  was  also  incon- 
siderahle:  accordinj?  to  some  calculations  a  direct 
loss  was  incuri'eil  under  the  act.  l)Ut  this  point  is  not 
now  jiertiucut. 

Wluit  was  the  effect  of  the  act  upon  the  hanks  and 
I  he  coMutryy  A  j^eneral  answer  must  he  postponed 
until  the  res\ilts  of  this  le^^islation  have  heen  studied 
in  detail. 

First,  then,  while  assets  amnuntinL;'  to  some 
$'i.S()(  1.(1(1(1  lia<l  heen  locked  np  in  ^■overnmeiit  deht. 
the  Mauk  of  .Montreal,  il  was  said,  had  heen  sortdy 
jiressi'tl  hy  the  (^lichee  and  r.iitish  P)aiiks  and  La 
IWliKpie  (111  I'euple.  Aftci'  the  passiii;;'  (d"  the  Pro- 
vincial   Note    Act  it  was   put    ill  a  position   to   use   its 

^  Moiii'l.ivji  '/'inifs  iiKtl  liimiriiiK'e  Vhronidf,  Tiiiiintii,  \ol.  i,  |>.  :iti'.i. 
-lliiil,  ]i.  |(il. 


w 


,-  \ 


18'^ 


'llir  Ctnidi/iiin  /tind-iiii/  Si/K/em,  I8i;-1890 


4 


r  .p 


strength.  It  liiid  Wn-ii  the  pract ic(>  to  srttU*  l>iilnnc('s 
arisiiiuf  from  t lie  cxclian^^cs  Ix-twcfn  llic  hanks  aixl 
l»i'aii«"lifs  ill  (lifViTciit  parts  of  the  coiiiitry  l»_\  drafts 
on  Mont rral  or 'I'oroiilo.  ( )\vint^  to  its  |»osscssi(»ii  of 
the  ;^ov<'i-nni('nt  accounts  tlicsc  halanccs  were  usually 
in  favor  of  tlic  Hank  of  Montreal.  As  tlic  arrant''- 
nicnts  for  Italanccs  wnc  nicicly  conventional,  it  had 
the  powci-  in  this  ca^c  to  exact  ;^i)ld.  unless  its  debtors 
liapju'iied  to  he  stocked  with  lej^al  tenders.  Ihit  that 
was  unlikely,  as  the  deiuiiiids  on  hank  reserves  were 
larj^ely  for  export,  and  tUv  this  they  needed  u;(dd. 
When  the  halances  were  a;^ainst  them  the  <;dverii- 
mt'iit's  hankers  could  pay  in  uoid  cu-  in  le;^al  tenders. 
They  had  a  direct  interest  in  j^cttin;;'  as  many  of  the 
latter  into  circulation  as  t iiey  could.  I'.y  t hreateiiin;^ 
to  exact  si'tt  leiiu'iits  at  all  points  in  money,  instead 
of  indrafts  upon  the  linancial  centers,  the  Hank  of 
Montreal  was  aide  to  cderce  sundry  of  its  competi- 
tors into  holding;  rej^ularly  at  least  .*|  .()()(>. otMi  of  pj-o- 
vincial  notes  in  sums  ran}.?in}jf  from  >;.'iO.(i(io  to  S'ido.- 
()<)<>.  under  arrangements  whi(di  practically  set  these 
sums  apait  f;-om  the  funds  availahlc  for  hankiiifj^ 
])Urposes.'      Kor  those   who  yielded  to  the   threat  the 

Mnunial  of  the  Sciiiite,  ('anailii,  iX<i7-<)8,  .\|i|iciiilix  I,  pp.  :i,  7,  It, 
lit.  '.'1.  Tlu'  |{:mk  i)f  'i'diniito  held  iKKi.iKMt  of  n<,tis  wliicli  coiild 
Mut  lio  prescntt'il  lOr  ri-dfiiiption  witliniit  liftceii  il;iys'  iinticj-  "tn 
promote  tlif  tiiiiiiii'ial  iiittTCBtH  of  tlit;  (iovciiimciit  imd  to  Hfoiirc 
fiivoraliif  arriuij.'('rii(Mils  with  tin-  Hank  of  Montreal  hi*  to  the  .sctlU- 
iiit'iit  of  hiilaiicc.w,"  p.  7. 

T1m!$'-"»(i,imii(  hel.l  liy  the  Hank  of  HnliHh  Ndrtli  Amcriia  iiiidiT  a 
fonna!  ;ii  raiij:t'iiipiit  willi  tiif  liscal  nvcnts  of  tin-  tiovcrniiu-iit  wan 
availaltlf  at  all  limes  for  orchnaiy  IhisIiichh,  imt  "it  in'mt  be  iintilc i/noil 
in  tirfiity-t'i'ur  horns  ,nid  / mill  for  hi/  f.rchiniiie,  «ti/t|  itl'tJilU  flit  ^' W 
Vorh-.  or  .-i;/M<V."  It  was  IfriiiinaMe  on  .seven  iliiyH'  illl|||'jl  l|||l|  "M'HI 
I'UUMtMl  into  t)  facilitate  set'  lenient  of  Ijalanee.s  throii^liniil  laiuiiU 
will)  tlut  Ihiaiieial  a^'cntH,  ait<|  jteeauHc  it  was  ut^reeable  to  ilie  uoV- 

erinntM(|."|'  ua.   Tli»ll(lll<Hiih'lii.v"wn. 


* 


J-'Jf'rr/s  nf  //ir  Proriuiiii/  \<>/r  Arl 


183 


(limimitioii  of  l);uikin}^  I'i'sourccs  wiis  coiisidjTiiMr  if 
viewed  in  leliilioli  to  sjteeie  reserves.  ilioiiisidel'ilMe 
if  in  ie|;iti<»n  !<•  llnir-  funds  fur  disconntin};-.  Itnt  still 
a  diminution.  IJiinks  with  many  iij;;en('ies  who  re- 
fused to  enter  into  such  arriin^cments  wci'e  oltlij;e(| 
either  to  ilold  l;ir';:^e|-  reserves  an<l  <list  filtute  them 
mtu'c  widely,  whih'  /xni  /xissii  their  power  to  dis- 
count was  diminished,  or  to  restrict  their  Ini^iuess  to 
tlie\ohime  whi(di.  under  tlie  new  condit  ion>.  could 
he  r;afe|y   Icised  ui»iin  the  old  reserve.' 

Second.  •'The  liank  of  Montieal  having  with- 
drawn its  own  notes  fnun  circulation  and  siihstituted 
for  them  the  notes  (d'  the  |irovince.  it  was  no  lon<;ei' 
interested,  in  common  with  the  other  kindred  insti- 
tutions, in  maintainin<^'  uuimpaireil  the  credit  of  all: 
the  el1"e<  t  of  that  ad  (the  Provincial  Note  Acti  was 
to  place  the  interests  (d'  the  I'.ank  of  Montreal,  the 
most  |)owerful  monied  institution  in  Canada  and 
the  tiscal  a;;eut  of  the  j^overniuent .  in  antay^ouism 
to  those  of  the  other  hanks. "-7  This  conclusion  of  a 
S(dect  committee  td"  the  Semite  is  not  refuted  hy  tlu! 
returns  imuk'  hy  the  sevei-al  hanks  to  the  govern- 
ment. I^.etween  the  HOth  Sei)tend>er.  ISCiCi.  and  the 
same  day  of  ls»i7.  the  jd'oportion  of  specie  or  its 
e(|uivalent  held  liy  the  jiank  (d'  .Montreal  aj^ainst 
immediate  liahilities  had  fallen:  the  amount  of  n(des 
issued    hy   it    and    outstaudiu);    in    the    hands    id'    Mm 

'  Mr.  .I;iiin'.-<  .^Icxcnsciii,  cii.sliicr  dl'  the  leucine  Maiik,  Hiinl  tliiit  nnli- 
imrily  (iiu'-liftii  nl'tlif  ciii'iiliitioii  iiiici  ilcposits,  atiil  niic  scvcnlli  cf 
die  iUiioMiit  (>l  tiinr  iic|iii8ilH,  wiuc  Hiillicit'iit  niniii'y  I'l'Mcrv  r,  luit  tlial 
a  lii'iniiiiil  till  st'lllciiiciit  ill  ^'i>|<i  <>(  JHiiiil  li  iKlt'i's  at  all  tiif  a^ciiricH 
(if  an  t>xt(Mi(lci|  iiank  wiMiJil  ('(iiu|a'l  liir  liiinli  t"  Ki'ip  at  leHt^t  onu- 
ruiulli  iif  tlitt  (■ircillatliiii  anil  i|i<|iiiHitH  iih  h  renfw  c     lin'il.  \i,  S/|, 

Uml,  |i|t.  I,  'J.  '{'Ill'  cjiMMiiiii'dl  I'ili'd  IhIIiI'  fi'i'ii'l  ii'|Mi||  iif  (lie 
^'I'lrct  I  HiiMlillti'i'  ii|i<  II  lii(<  I  aiiHi'H  uf  (lie  ItiTClit  I*  liiani-iui  (  risiH  iii 
till!  t'rovllU'C  cif  Oiitarin. 


\  ''■  I 


U^  H 


fflf 


j'f 


\'\ 


i« 


IHi 


Till'  ('(ituiiliiiit  Itiitik-iiDi  SiiKlvni,  1817-1K;»() 


'r.l    ' 


.,     .-i 


:-l 


]iul>lic  Iwid  il«'cr(>!isr(|,  ami  so  had  tlir  liaiik's  piililic 
di'posils.'  'riic  auj^iTuatcs  of  llu;  ot  her  Itaiiks  sliowrd 
an  iiK'icasc  in  each  of  tlirso  items.  A^sllmin^;  tluit 
tlirrr  had  hccn  a  ;j^t>ii«Tal  stagnation  in  husint'ss  prior 
to  Octolicr.  iSCtT.  tlic  Hank  of  Montreal.  coMiparcil  to 
the  other    l>anks.    was    unprepared    to    meet    heavy 

''i'li«'  rolliiwiiit!  licin'fH  ari'  takt-ii  I'nuii  tlic  ^<i\criiiiM'tii  rftiiiii 
(liitccl  lltii  Miucli,  Isi.s,  ijiiiiti'il  in  tin-  iMTiodu-al  iiaiiir-il  lu'lmv.  iiikI 
tli<<  iisiiiil  "Stat('Mu•llt^'  ol  liaiiks  acting  iimler  t'liurtfr"  in  tlic  (  aiiailii 
(iazitte: 

I'lxtrHi'ts  fmin  llx-  Htati'iiu'iits  of  cliartcrcil  luuiks  in  llie  I'ids  iiic«' 
of  Tanada.  fciilOtli  Sc|.ttMnht'r,  In*h>,  ami  I'.i'Hi  Si'ptcinlifr,  I'^'iT,  t-x- 
(■liiHivi>  i>f  tlic  Hank  of  rpprr  <'anuilu. 


Hunk  (il 

Hank  iif         llHnk  nl       MiinlrtMil.  OiIht 

[iiiniciliiiti'  t.iiiliilillcH.     Mi<iiri'i>iil,      Miiiiirt'Hl,      iiHllnv't  Hunk- 

Ixiti                 l>m;              llrtiik,  iNiti 


$ 


«,7)t'.,:f.M 


iiiink  miles  in  circii-  S  ^ 

lation ;  :i. i.sT,!i',»r.      (i:.;..s(i-_' 

Provincial    imtcH  in! 

cirfiilation •J.ditO.dOO 

Provinfial  nott-s  in 

I'.ank  (if  Montreal :ts:i,fi9:! 

Pro\  iniial  notes  in  ,  i 

olluT  lianUs l,OiMl,(Mi(i 

IVpositH  tiy  puWIif..    s,(»7S,7(iL'     7,r)ti:.,'jui  14,«)4H,ss:; 

'•  tfuv't..    i,oi.'),(ir)2 


oihor 
lliiiiks, 

iHiir 


% 

M,I77,().'>S 


i'.t.tVI.IHS 


;i(Hi,(Mit) 

8-t,27!t 

'js,:.i2.r)L':. 


prov.notesonliaml '_Mltt,!iH7! 

DepoaitH  iiy  vrov't  on  | 

issiii'  account I'..">l,'.t!t5 

I)ii«  by  <'oMiMM'rcial  | 

Maiik  on  loan ' 

Due  forci^rn  l»ankH 

Total iL',i.'si,sn!t  iu,(;:;(i,n.|.'> :{,:;s."),«i'.(:i •.•ijiii.'i.L'o; 

yulcU  Assets.  %  $  ^  $ 

Specie I,.s|.-.,:;l'")        r)4't,;!08 ;".,  I7!»,2<ii>,     »,:;;{i,4'>i 

"   lield  forreilenip-  | 

tlon  of  prov.  notes <i77,K''H 

Provincial  notes |,(iiin,(»(M) 

Notesanilcliei|iiesor  i 

ollierlianks :'cM,::l'."i        :i7!»,4:iN l,it!t.'),4-_':)      I..V)l).l.M2 

Due  hy  Ctinrii'.ank ;!(i(t,iHi(» 

"  foreij;nl)aiik8      8.s."),7:ii'.       !>7ii.'-'<ii> l,.'>4l,;!s:i 

;;,().",'). :{.s(i    •j.L'ni.nnc,    ti77,i:!H  (i,  I  If., 11(18    (;,.s!i:!,r)(i(i 

Percentajic  of  sjiecie 

or  itH  I'iiiiivalent. .       '-'"i ','             !"•• ','                              -'.»',  I'J ',' 

('li'geinspecif<iti-'<i7 —$»;•.'•_', S7i»     JS'i'iJiH 

"    incirciilatiun. .,    —  ."(iiu,]:!:; l,7tiii,7:M 

"    in  piili.ilepositH —   .')7.'!.'i<il 6,iiiiL',:!(tr) 


Hlh'ils  1)1'  thr  rmrimiiil  Sntr  .\rl 


IS5 


(l«'iuiiinls  liv  til''  pultlic.  lint  if  wt  jidopt  Ihr  com- 
iniltcc's  citMclusicM  iiml  iissiMiic  t hat  tli-rc  was  w;«'ii- 
cijil  prosiM'iitv  aixi  sninKliirss  ill  trade  iiivi»|\  iii>;j 
ihcfca^fd  circiilat inii  ami  lnax.v  (l('|»nsits.  tlif  liaiik  s 
|»<»sit  ioii.was  siirli  that,  prnvidcd  cdiilidriH-r  in  itsrif 
Were  umlistlirlicd.  a  j^t-lirial  discredit  of  the  utln'r 
hanks  Would  In-.  >i  priori,  not  only  d(>siral)l)-  l>iit  pro. 
titahlr.'  Sncli  a  disrrcdit  would  tend  to  increase  tlu! 
t'ir<nlatioii  of  provincial  notes.  t<  attract  depositors 
to  tile  >ecnrity  of  the  unvernnieiit  hank,  and  to  hriii>^ 
the  ••valnahle  accounts"  of  nierchaiits  to  the  jj^rejit 
institution  that  could  aHUrd  them  discounts. 

Third.  !n  ls;)S  and  lsr>iMhe  Coniinercial  Maiik  fur- 
nished larue  ailvances  for  the  current  expenses  and 
coMiple'.ioii  of  an  .\niericaii  railway,  the  Detroit  and 
Milwaukee  \l.  It.,  on  the  faith  of  a  «rant  of  riaO. (»()(> 
st;;..  secured  from  the  London  HoartI  of  the  (Jreat 
Western  Hailway.  The  hank  supposed  that  the  loans 
Were  made  to  t!ie  (ireat  Western  Railway,  hut  under 
th'  ( 'oinmerciars  system  of  ca-h  credits,  evidences  of 
that  corporation's  liahility  w.if  not  secured  at  tin* 
time  (d"  ea(di  advance.  -The  atlvances  were  made 
hy  overilraft  on  curreiu  account,  and  the  headin^>  of 
the  led^ei-  as  made  iiy  a  cN  rk.  as  he  carried  the 
account  from  f(dio  to  folio,  were  so  indetinite  as  to 
leave  room  for  endless  dispute."  -  The  aifreeiiiellt 
was  that  traltic  receipts  of  the  D.  iV  M.  should  he  de- 
|>(>sited  with  the  hank,  and  e.\chan;;c  on  the  London 
Hoard  of  the  (i.  W.  IJ  ( 'o.  ;;ive!i  monthly  to  (over 
deficiencies.  (  Mily  aliout  I'S'j.tl-jo  st<;.  of  t  his  excdiaiii^t! 
Were  drawn.  I'.y  theeiiil  of  is.'t'.i  there  was  a  lar^e 
halance  in  tavor  of   the   hank.      The  (ireat   Western's 

'Cf.  tlu'  iir>!miuMits  ill  tlif  M^'Ufliirn  Tiine*,  vnl.  i,  p.  ll!», 
-"  bullion  nil  niiiikiii).'.  with  iKitcsuiul  i>))serviitioiisli.v  a  CaiiiKliun 
liaiik  inaauner,"  Toronto,  ISTti,  |>.  l'I    imto. 


II 


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IMAGE  EVALUATION 
TEST  TARGET  (MT-3) 


1.0 


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2.5 


I.I 


1.25 


t  1^ 

^    ■ 

IIIIM 
IIIIM 

1.4 

1.6 

— 

Photographic 

Sciences 
Corporation 


lip  Wj3 


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23  WEST  MAIN  STREET 

WEBSTER,  N.Y.  14580 

(716)  873-4503 


^ 


186 


The  Canadian  Banking  Sji stem,  1817-1800 


■iv;t' 


London  directors  contended  that  the  credit  was  given 
to  the  1).  &  M.,  or  to  their  own  Canadian  colleagues, 
who    were    managing  the    American   enterprise,    as 
individnals.      Suit    t'oi-    a    million    odd    dollars    was 
brought  against  the  English  company  in  1802.'     The 
Court  of  Queen's  Bench  decided  in  favor  of  the  bank. 
On  appeal  it  was  held,  in  1804,  tliat  so  much  of  tin; 
i'Sno.OOO  loan  as   had  not  been  drawn  for  could  be 
recovered  by  the  bank,  that  the  lower  court  should 
have  so  declared  the  liability  of  the  (ireat  Western 
Company,    and   that,    as   it  had   not   done   so.   there 
should  be  a  new  trial,  unless  the  parties  settled  on 
this  footing  or  ascertained  the  amount  by  a  referee. - 
During  the   litigation   the   capital,  of  course,  was 
still  locked  up.  and  neither  i)rincii)al  nor  interest  was 
settled  for  until  the  autumn  of  1800.     The  bank  then 
obtained   !?1.77(),()0()  of    Detroit  and  Milwaukee   :iO- 
year  bonds,  bearing  interest  at  7  per  cent..  ^100, 000 
of    which   were  payable   annually.''     But  instead  of 
selling  them   promptly  the   bank   waited  to   realize 
upon  the  bonds,  and  thus  failed  to  set  free  its  locked 
up  funds.     The  community  suspected  that  the  capi- 
tal  had  been    impaired.      Distrust,    inspired    by  tl\e 
failure  of  the  preceding  year,  was  still  strong.     It 
became  known  that  the   bank  had   been   obliged  to 
give  security  to  several  of  its  largest  depositors.     A 
run  was  then  started  upon  the  deposits.     A  loan  of 
$300,000  upon  collateral,  secured  by  the  helj)  of  the 
government's  request  from  the  Bank   of    Montreal, 
averted  immediate  danger.       This  was  the  10th  or 
17th   September,  1807.     A  month  later  another  run 
upon  deposits  was  begun.     Tlie  representatives  of  all 

'L';5  U.  (".  Queen's  Bench  Reports,  p.  285. 
'L'  Error  and  /pp*>al,  p.  L'85. 
'Toronto  Globe,  '1?A  uctober,  186(5. 


J'" feet  a  of  the  Provinrktl  Xo/c  Art 


187 


the  banks  in  Canada  West  met  at  Montreal  the  )>Ut 
October.     Tlie   Comroercial   Bank   asked  for  an  ad- 
vance of  .s7;-)0,000,  one-half  at  four  and  one-half  at 
six  months,  and  offered  the  D.  &  M.  bonds  as  secu- 
rity.    A   discussion   ensued  as  to  the  amount  to  be 
contributed  by  each  bank,  the  representatives  of  the 
Bank  of  Montreal   and   the   Bank   of    British    North 
America  contending  that  the  shares  should  be  in  i)ro- 
portion  to  circulation   and   deposits:    the   others  foi- 
contributions  in  proportion  to  capital.     The   Hank  of 
Montreal  offered  to  advance  two-thirds  of  the  money 
necessary  to  sustain  the  Commercial,    i)rovided  the 
other  banks  would  guarantee  it.     The  British  Bank 
offered  the  other  third  on  the  same  terms.    This  plan 
was  rejected  by  the  other  banks.     The  two  Montreal 
banks  then  withdrew  from  the  meeting,  the  Bank  of 
Montreal  agreeing  in  the  meanwhile  not  to  discredit 
the  Commercial,  but  refusing,  practically,   to  grant 
assistance  on  the  same  basis  as  the  other  banks.    An 
unsatisfactory   understanding  reached  at   noon  was 
objected  to  by  some  of  the  head  offices  at  five  o'clock. 
Then  the  Bank  of  Montreal   declined  to  accept  the 
responsibility  of  taking  in   hand  the   affairs  of   the 
Commercial  and  protecting  the  creditors.'     The  gov- 
ernment was  anxious  to  avert  the  failure,  but  as  they 
were  again  owing  the  Bank  of  Montreal  two  millions 
and  a  half,  they  could  not  urge  it  to  act.     It  is  not 
apparent  from  the  returns  or  circumstances  that  the 
latter  had  any  interest  in  maintaining  the  credit  of 
the    Commercial    or    of    other    banks.       The     Privy 
Council  did  not  feel  justified  further  to  interfere,  and 
on  the  morning  of  the  22d  October  the  Commercial 
Bank  of  Canada  stopped  payment. - 

'Toronto  Olohe,  2Sth  October,  18(17.     Ottawa  Tiwen,  VMh  Decem- 
ber, 1867,  Mr.  Gait's  explanations  respecting  tbe  Commercial  Hank 
failure. 
-Ibid. 


II 


,  ,1, 
'  \ 

i       : 


\% 


I 


18S  Thr  (;ati(i(li<ni  llankinf)  Sustoit,  1817-1890 

Over  S"?. ()()<>. (MK)  of  iioti's  and  deposits  wore  paid  in 
tlie  thirtv-livc  days  after  tlu'  IKtli  Oetoher.  P.y  the 
IMst  December  its  total  liabilities,  averjigiiiK' !i^4,()^)7,- 
(»()(»  in  September,  were  redneed  to  s|, 871,1 7;i.  The 
amalgamation  of  the  Commercial  with  any  other  bank 
or  banks  was  anthorized  by  the  Dominion  Parliament 
the!>lst  December,  18(57.  (HI  Vic,  cap.  17.)  The 
contract  with  the  ^lerohants"  Hank  of  Canada  by 
which  the  shareholders  got  one  share  in  the  Mer- 
chants' for  three  in  the  Commercial,  was  confirmed 
the  'i-Jd  May,  I8(;8.  (:}|  Vic.  cap.  84.)  All  its  lia- 
bilities were  redeemed  in  full.  The  rapidity  of  this 
redemption,  as  well  as  the  course  of  the  bank  pre- 
vious to  the  suspension,  can  best  be  read  in  the  table 
appended.' 

Its  shar(du)lders  lost  two-thirds  of  their  invest- 
ments, and  another  of  the  Upper  Canadian  banks 
succundx'd  to  the  fate  which  overtook  them  all.  But 
the  failure  of  the  Commercial  Hank  was  Inniorable. 
It  was  the  result,  as  we  have  seen,  partly  of  one  large 
and  bad  account,  })art!7  of  the  suspicion  caused  by 
the  bank  disaster  of  the  yeai  before.  If,  however, 
we  accept  the  explanation  given  by  its  president,  it 
must  be  said  that  the  '•  real  and  ultimate  cause  was 
the  measure  which  had  been  inflicted  on  all  the  bank- 
ing institutions  of  tiie  country. ""-' 

'See  Table  next  page. 

-Ottawa  Tiiihs,  4th  I^jeenibcr,  18(.7,  sDeecli  of  Sir  Richard  .T.  Cart- 
wri<?lit,  upon  tlie  ('oiiHiierciai  Hank  hill.  I  have  hesitated  to  use 
this  (luotatioii  hecause,  th(iiij:;h  lu.ne  other  was  imhlished,  the 
press  reports  of  the  debates  in  these  years  are  somewhat  unreliable. 
The  distinjiuished  speaker  gave  evidence  to  the  Committee  of  the 
House  of  Cmmons  in  18iiit,  in  which  lie  remarked:  "  No  api)recia- 
ble  disturbance  was  cause<l  by  the  effects  of  the  act,  the  failures  of 
the  I'ank  of  Upper  Canada  and  of  the  Commercial  Bank  being 
clearly  traceable  to  ciiuses  wholly  unconnected  witli  and  unafTected 
by  that  measure."      Vhh'  .Tonrnal,  ISfi!),  .App.  I,  j).  41. 


:(  -^r 


11 


» 


Efforts  of  the  rrorinridl  Xnfc  Aif 


189 


^1 

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190  7V//J  Canadian  BanhhKj  Sjislem,  1817-1800 

Foiii'th.  As  llic  event  was  not  altogotlnM"  a  sur- 
prise, the  exeitement  occasioni'd  hy  this  failure  soon 
sulisided.  But  sliortly  after  the  Conimereial  sus- 
penih'tl,  ihe  I'ank  of  Montreal  sent  a  confidential 
tele<;rai)h  caution  to  its  branch  nianaj^ers  against 
some  of  the  western  banks  who.  as  individual  con- 
cerns, were  not  in  the  strong(>st  possible  condition. 
On  the  !i4th  October  a  run  was  started  on  several  of 
the  Ontario  banks.  It  increased  the  next  day,  the 
Uoyal  Canadian  beingtlu^  most  affected  and  tliedlore 
next.  Towards  the  afti'rnoon  of  the  ;2()th  the  run 
netivly  ceased.  Then  came  the  alarming  report  that 
tlie  government's  bankers  were  refusing  the  notes  of 
the  Tppei-  Canadian  banks  except  foi"  collection.  Tlie 
]»anic  retui'ued  with  increased  violence.  AfoiU'y  r(»se 
in  ^Montreal  fi'om  1)  per  cent,  to  12  per  cent.  The 
Royal  Canadian  managed  to  meet  all  denumds  upon 
it,  ])aying  out  over  !5<40().()(>0,  but  the  panic  abated 
only  after  the  government  agents  in  all  parts  of  the 
countrv  had  been  instructed  by  telegraph  to  receive^ 
*lie  notes  of  all  chartered  banks  except  the  two  that 
had  failed  (I'pper  Canada  and  Commercial.) 

The  rumor  that  revived  the  }»anic  was  not.  to  be 
sure,  exactly  correct.  The  explaiuition  of  the  action 
by  the  Bank  (d"  ]Vrontreal.  offered  through  its  general 
manager.  ^Ir.  E.  iT.  King,  was  that  none  of  their 
ag(!nts  had  refused  the  notes  of  specie  paying  banks 
of  Upper  Canada,  "trlirre  they  had  aqencies,^  ex- 
cept the  manager  of  our  Kingston  branch,  who  acted 
und(  r  misapprehension  and  was  immediately  cor- 
rected by  telegraph.-'     Two  or  three  agents  did  de- 

'Tlie  italics  are  inino. 

-The  news  of  tlie  action  of  the  Rank  of  ^lontreal  reached  the 
government  at  L*.3(.t  j).  ni.,  'J(ith  October;  that  oi  the  correction  of 
the  Kingston  manager,  given  hy  the  hank's  head  office,  at  3.45  p.  ni. 
the  same  day.    Ottawa  Timi'H,  13th  December,  1S»)7.  loc  cit. 


[.  Ii 


'^il 


1 


■« 


I\lfrrls  of  thr  I'rorincinl  Xo/r  Art 


191 


cliiu'  to  rccoivc.  cxropl  on  collcctioii,  notes  of  the 
Royal  Canadian  liaiik  at  places  whero  they  had  no 
oflfico."'  The  notes  at  Kinj^ston  had  hecn  thrown 
ont  of  the  (Uqtosit  of  a  railway  company,  whose 
agent  immediately  warned  all  the  otiicers  on  its  lino 
not  to  take  the  paper  of  the  hank.-  The  damage  was 
done  long-  hefoi-e  the  correction  from  the  Hank  of 
Montreal  conld  reach  Kingston. 

Those  who  gave  evidence  to  th(-  Senate  Committee 
of  18(57-(tS  were  nearly  unanimous  in  testifying  that 
trade  from  the   1st   of   September   to   the   middle  of 
()ctoher  was  in  a  very  satisfactoiy  state:  the  yield  of 
staple  croi)s,  if  a  little  less  than  the  yeai  before,  was 
still  good,  and  the  (piality  excellent,  prices  wcu'e  high, 
money    ])lentiful,    and    imi)ortations    not    excessive. 
The  timber  trade  was  somewhat  (piiet.  but  not  enough 
so  to  affect  the  general   prosj)erity.     After  the  bank 
failure  and  the  subsecpient  panic,  uncertainty  as  to 
the  attitude  and  intentions  of  the  government's  fiscal 
agent,  compelled  the  other  banks,  in  great  measure, 
to  withhold  tlu!  advances  obtained  in  the  autumn  by 
})roduce  dealers  and  others.     Yet  at  this  time  of  the 
year  an  expansion,  both  of  discounts  and  'jirculation, 
was  not  merely  normal,  it  was  economically  neces- 
sary.     Trade,  therefore,  suffered:   i)roduce  operations 
were  suddenly  interrupted:  money  was    scarce  and 
held  at  high  rat<'s:  the  value  of  the  stai)le  })roducts 
of  the  province  was  depi-eciated.    The  business  activ- 
ity of  September'  was  changed   in   Novembei-  to  busi- 
ness stagnation.     If  the  failui'e  of  the  Commercial 

^ronrnal  of  tlie  Senate,  IS(i7-()8,  A  pp.  I,  p.  ;')4.  As  a  matter  of  faot 
the  notes  of  the  Royal  Canadian  liank  were  refused  excejjt  for 
eoUection,  by  agents  of  ISIr,  King's  bank  at  Belleville,  !'''jckville, 
London,  8t.  Mary's,  Brantford  and  Stratford,  as  well  as  at  Kingston, 
Toronto  Globe,  L'Sth  and  IJOth  October,  IS(;7. 

-Ibid,  p.  IT),  Evidence  of  Mr.  Wodside. 


V 


f 


192 


The  Oamdiiin  Ihinkitui  Si/sfetn,  1817-1800 


U  '^.. 


Bank  is  counted  the  tliird  of  tliese  results  to  wliicli 
the  Provinciiil  Not(;  Act  contributed,  the  situation  in 
wliich  tlu'  panic  was  revived  and  commercial  dejires- 
sion  inchiced.  must  be  taken  as  tli<^  fourth. 

Fifth.  The  ])ani(\  1  have  said,  was  (juieted  by  tlie 
action  of  th(>  i^overnment.  Th(i  larger  number  of 
runs  resulted  in  drains  of  not  more  than  three  i>er 
cent,  of  tlu'  total  liabilities  of  the  several  banks 
affected.  Tn  the  heaviest  run.  not  moi'e  than  ten  per 
cent,  of  such  total  was  called  foi".  It  is  not  to  be 
supposed,  however,  that  distrust  vanished  immedi- 
ately. In  this  connection  a,  comparison  <)f  the  bank 
statements  for  the  8()tli  September  and  MOth  Novem- 
ber will  be  instructive.  The  table  lierewith  indicates 
the  changes  in  each  direction  to  be  noticed  in  the 
November  statement  from  that  of  two  months 
previous. 

DiiM-KKKNTiAi,  f 'oMi'.MiisoN  of  Uie  Statement  of  tlie  Hunks  .■xctiiig 
under  charter  in  Ontario  and  Quebec,  for  the  niontiis  of  Sej)- 
teniher  and  November  re.si)ectively,  18(i7: 


Bunk  of  Montrenl 


Other  IJiinK-8 


1    IinTuiise    j  Dt'crt'iisi'!     liicrous<'      Dlhtcusi; 
l.ial)iiities  '  j  | i 

Ciov'tiU'positson  G-mi.  Acct...     J;()7i»,!)97  ■ ' 

"  "        on     Provincial 

Note  Account ■")(IL',")4(I  ; 

Notes  in  circulation irIKvKi.') i;;!17,.V,»4 

Deposits  l)y  the  i)uhlic l,-_'(ll,424 : I  S4'J,Sjs 

Due  by  Commercial  Bank  on  i 

sitecial  loan. ' :;(iO,(i(l() 

Balances  due  toother  lianks ; I    $4L'ii.")!i(i 


Assets  ! 

Specie  and  provincial  notes...    I,447,s(i!) 

Ciovernment  securities '   7ii('),2.'i!i 

Commercial  I'.ank  loan  repaid |  ;{()(i,li( 

Due  )>y  other  banks 4(14, -Ji'S 

Notes  and  bills  discounted. . .    1,:!(I4,1H4 


I 


r)5s,s(i0 


•")ti,(17L' 


>i.i(»:').SL'7 


'(!f.  The  Monetary  Times  tdid  Insurance   Vhronide,  Toronto,  ]S(17, 
vol.  i,  p.  4.")7. 


mi 


J\l}'<'cls  of  I  lie  /'ron')i('iiil  Noh'  Art 


1  '.t;i 


The  incrt'aso  and  decrease  in  the  immediate  liabil- 
ities and  quick  assets  of  the;  Hank  of  Montreal  and 
the  other  banks  of  Ontai'io  and  Quebec  (Upjier  and 
Lower  Canada),  were  as  follows: 

Ag^'rej;iite  Clmii^L-H  from  tlie  Septeinlifr  averape  in  tin- 
N(>veinl)Hr  avoragc 


m 


,;  'm 


M 


eiiiiiliitioii  Dt'iuislts  I  Dlsi'oiints 

^  I 

IiuTciiK'   DfcTi'iisf    Iiicreasi'     Di'ciciise    Iiu.'reasc    Uccrciim' 


Otlicr  specie-  $  $  %  %        .       %  * 

jiayint,'  bks' 5;'.;5,7.");!  ,s:)i,:;47  4in,.-)0i>  •j.L'oii.L'so;  7.»!t,.")0t;L'.s:):'.,;!;;;! 
Uaniv  Mont'oai  :isy,184-j l,ss|,4()0- :i,:Vi4,i;;4 

1  '  1 

We  have  seen  that  in  the  months  from  September 
to  December,  there  was,  betwi'cn  the  Bank  of  ]\Ion- 
treal  and  the  other  banks,  a  dift'ei'ence  of  responsi- 
bilities, interests  and  position.  The  f^overnment  wns 
dejiositiny  larg'e  sums  in  thc^  Hank  of  ^AEontreal.  tliere 
to  let  them  rest  for  some  time. '     The  consequence  of 

'Kxclusivo  of  tiie  Coinnierciai  Haiili. 

-As  tiie  provincial  note  circulation  was  jJroHtahle  to  the  liank  of 
Montreal,  it  figures  under  the  item  of  circulation  as  the  bank's  own, 
and  is,  by  consequence,  deducted  from  the  deposits  made  by  <;o\- 
ernnient. 


'Statement  of  avera<,'e  daily 
balances  for  month  at  credit 
of  the  Receiver  (Jeneral  in  the 
Bank  of  Montreal. 

1S(J7— June ^    S7"),;)7l' 

July .".(J;;,L'77 

August (i;'.ii,i:;7 

September. ...  I, Cm:;, 482 

October I,!t77.t)ll» 

November L'.L'iiii.'.isd 

December 1 ,71.'S,()L'i' 

iSi)S— January l,<Mit,-_>47 

Februarv I,:i:'>l ,:!!  I 

March.." l,slti,.V,)l 

April l,(i;'.-J,  1  IS 

Mav 1, !•:;■_>. '.IS.') 

Juiie l,."jl(t,l.M  I 


-Vverage  weekly  balances  of 
the  Iteceiver  General's  Issue 
Account  with  the  15ank  of 
Montreal. 


Ckkpit. 
I(i4,.s(ii» 

;i4.".,;;it:; 
;'.:'.( '..HI  I.") 
LV'.o.r.i.") 
74l',7!i:'. 
S(i-_',7.34 
s!):;,(i:;4 
I,]s<;.74l' 
.■■>l7,n:;i 
i.'!i:i,(i!iii 
L'S,. ■■.{)( » 

1 .')!.',  74n 


I)i:i!n 


:r:'i(i."),Sln 


•essional  papers  of  the  Dominion  of  Canada,  IS7n,  No.  .is,  pp.  (l-S. 


i:] 


:ilf     d 


11 


104  'I'hr  CtnimiiiiH  /luiikiiii/  Sj/s/rm,  IHll-lSKO 

tlic  distnist  prevailing;'  in  tlic  rin>nllis  nii'iitioncd  is 
plainly  iipjuu'cnt  from  t he  tal)li's.  'riic  ^ain  of  the 
one  Itank,  flic  li»ss  of  tlic  ullirrs.  rnn^t  lie  i-cckoncd 
tlic  lil'tli  result  \'i}\-  which,  in  ;;Tcat  nicasiii-c.  the 
[*i'(i\  iiicial    Note    Act    was  dircctlv    rcspoiisihlc. 

The  rcnidlci'  c()nsc(|ucii'es  ol'  this  law  will  occa- 
sionally ajipear  in  siil)se(|Uent  paj;'es.  The  more  ini- 
nieiliate  cfTects  detailed  ahove  were  well  sinnina  li/.ed 
in  a  sin;;le  sentence  hy  Sir  Kicdiard  .1.  ( 'art  wrij^ht, 
delivered  in  the  Dominion  House  ol'  Commons  the 
lid  hecemher.  kSCiT:'  "A  statute  nioi'c  «dTensi\('.  or 
more  deliberately  mis(diievous.  or  more  calculated  to 
l)rejndice  Tppei-  Canada,  it  was  impossibk-  t(t  con- 
ceive." 

In  the  discussion  just  concluded  1  have  ventufecl 
somewluit  heyond  the  strict  limits  of  this  jtart  of  our 
history.  The  province  of  Canada  caiue  to  an  end 
the  1st  July,  ISCtT.  wlu'U  tlie  territoi'y  \vhi(di  it  coin- 
prised  was  (liviihMl.  under  the  Dritish  North  America 
Act  of  the  hupcirial  i'arlianieiit,  into  The  prov- 
iuci's  of  Ontai'io  and  (^uehec.  and  these  two  were 
united  with  Xova  Scotia  and  New  Brunswick  into 
the  colonial  confederation  of  the  ••Dominion  of  Can- 
ada."" 

To  sum  up  the  growth  of  the  banks  under  the 
Union,  a  comparative  table  for  IS41.  ISHI.  18(51  and 
18(57  is  annexed. 

'Koported  in  the  Ottawa  Times. 


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No 


I'K. 


Ui;i,ATinN   III-    iiiK  Hank   Nori:  Is>i  k  m  tiik  Piik  .iKiATiVKs 

ol'  Tin;   St  A  IK 

The  rijflit  to  ii>Hi\i'  inniniHHiiry  notes,  ^myilllU^  mi  duniiind,  fnr  cir- 
cnlntioii  118  iiKPiiey,  wiih  not  niiirinally  a  ^jovfriinifiit  or  crown  pii'- 
roirativf,  citlHT  in  (iriat  ISi-itain  or  tlic  colonies.  It  wastlie  coin- 
inon  liiw  rijilit  of  any  one  wiio  fliose  to  exercise  it.  Tlie  pieroKa- 
tive  of  (hawing  eliequeH  or  liills  of  exclianne,  or  jjivin^;  ilcposit  re- 
cei|>t.s  or  [ironiissory  notes  payalilt!  at  a  time  future,  could  iiave  been 
lilaiiiiod  just  as  lo^'ically  as  tliat  of  issnin}.'  liills  forcircMilalion.  Tliese 
instruments  are  all  tlie  documentary  eviileiu'e  of  ri^lits  to  demand, 
and  all  are  available,  all  are  used  to  alTect  transfers  of  rijzlits  to 
nifiiify  or  to  j»(iuds  expresse<l  in  terms  of  money.  Tliey  are  distin- 
j;uislialile,  not  by  tiieir  function,  but  merely  by  tiieir  form  and  tlie 
dilTerent  ile^jrees  of  credit  und  transferability  with  which  the  dif- 
ferent forms  are  endowed.  Tlu!  diferences  in  the  le^al  rules  re- 
specting' them  rest  on  the  dillerenccs  in  tlie  place,  time  and  manner 
of  payment,  the  persons  to  whom  the  jiayment  is  made,  and  the 
persons  immediately  or  secondarily  liable  for  that  payment.  In 
i|U"stions  tt>ucliin(;  the  economic  essence  of  transactions  in  such 
paper  the  general  rules  are  the  same.  Thus,  e.  <j.,  where  the 
transfer  is  without  indorsement,  whether  it  be  a  sale  of  the 
bill  (,r  iKjte,  or  an  exclian<:e,  or  by  way  of  discount,  or  where  tlie 
assijrnee  aj.'ree8  expressly  to  take  it  in  payment,  he  can  neither  re- 
cover against  the  assignor  upon  the  bill,  nor  recover  back  the 
amount  given  for  it  on  aecount  of  failure  in  the  coiisiileration,  un- 
less, indeed,  the  assignor  knew  the  bill  or  note  to  be  that  of  an  in- 
solvent when  he  assigned  it. '  The  same  principle  obtains  with 
regard  to  bank  noti's. - 

I'lit  the  ililVerence  between  the  nrites  of  a  solvent  bank  and  coined 
metal  or  a  legal  tender  governrnent  currency,  is  one  that  cannot  be 
too  often  or  too  strongly  insisted  upon.  The  one  is  an  instrument  of 
ereilit,  a  mere  rei)resentati\e;  the  others,  lawful  money,  the  legal 
standard  of  \alue  and  the  legid  means  of  jiayment.  Bank  notes 
circulate  and  are  used  in  money's  stead,  with  like  elTect,  only  by 
virtue  of  conv(?ntlon.  Current  bank  notes  are  a  lawful  tender  in 
payment  of  debts  only  when  the  creditor  does  not  object  to  them, 
as  not  nuiney,  and  ileinands  payment  in  coin.  Hut  an  offer  of  cur- 
rent coin  or  government  currency  endowed  witli  forced  circulation, 
whether  or  no  it  be  convertible  into  specie,  is  a  legal  tender  uncon- 
ditionally. In  short,  bank  notes  man  he,  money  »i?/s<  be  accepted 
as  payment.   There  is.  therefore,  no  true  analogy  between  the  issue 


'  Daniel  on  Ni'Kiitiuljli'  Iiistcumciits,  I'oiiiili  Kilitmii,  N'l'W  York.  ISM,  STiSii. 
-  Ihiil  !il(i's.    cf,,  ;iisii,  Weir,  "The  Law  ami  I'nuticc  ol  lliuiking  C'oriioratiiiiis 
,'■  Montrciil.  isssiiii.  lis  |ii:|. 


iinilor  Itoininidii  A< 


\M  { 


lUmk   \iih'  Issiif  mill  Sfii/r   I'lii'iiiiiil I rr 


lo: 


nf  proniiHsory  luitcs  |iayiil>lc  on  di'iiKUnl,  ami  tlic  ilctiTininatiini  ainl 
IdHiit'  (if  tilt' stiiiiiliinl  of  value  ami  atid  tlu(  Ic^mI  tciiiU'r,  uh  an  vwv- 
rist' of  the  Htate's  sovrrciKii  imiwit.  'I'h  proiiiisc  niicli  an  iiiialn^y 
an<l  til  (Iciliicc  friiiii  the  iiiiiit  |ir('nij.'ativc  tlic  cxcliisivi'  li^lit  nf  tlii' 
Htiite  to  isHUf  a  convcitilih'  fliliiciary  currfncy,  is  a  iiroccss,  Hiit'cimis 
jicrliaps,  liiit   illo;.'ii'al,   iii\IiiHtoiiral  and  danj.'i'r 


mis. 


Tlif  tnic  t'x- 

jilanatiiiii  of  stale  intcrfiMcnce  with  niatti-rs  uf  banking  and  the 
issue  of  bank  notes  is  t  »  he  found  in  the  i.'<'iieral  powers  of  Hiipurvi- 
sion  ami  leiiiilation  exori'ised  hy  ;.'oveinineiit  in  the  supposed  inter- 
est ofthepnlijic,  ami  in  the  conditions  whirli  ^ruvernnieiit  haslieen 
ahle  to  exact  in  return  for  the  coiu'essjiins  souj.'ht  hy  thehaiikH, ' 

It  fojhiws  tliat  two  of  tile  |iropositioiis  implied  hy  Mr.  <  ialt  wlien 
he  nr^rt'd  that  thefiovfrninoiit  Hlioiild  resume  a  portion  of  the  rijjlits 
wliicli  tliey  liad  deputed  to  others,  were  radically  incorrect.  Tlieso 
jiropositions  were:  lirst,  that  the  ri^flit  of  the  hanks  to  issue  notes 
liad  been  (Jii^inally  derived  from  tlie  government;  and,  seconil, 
tliat  tlie  prerojrative  of  issninj:  a  fnluciary  currency  pertained  to  tlie 
povernment. 

The  riplit  to  issue  hank  notes  existeil  anil  was  exercised  both  in 
Lower  and  Upper  Canada  liefore  hanks  ever  became  a  subject  of 
legislation.  It  was  exercised  hy  private  banks,  and  w  itliont  lei:isla- 
tive  sanction,  for  a  considerable  jierioil  after  theearly  charters  were 
granted.  And  in  I.s;i7.;'.S  both  provinces  interfered  with  the  private 
note  issne,  not  as  an  infrinixement  f>n  government  preroL'ativo,  imt 
as  a  niein\ce  to  the  ])ul)lic  security.  Tppi-r  Canada  recognized  the 
worthy  [irivate  hanks,  and  permitted  theTii,  under  supervision,  to 
continue  their  business.  LowerCanada,  tlirou_di  the  Special  Coun- 
cil, prohibited  only  such  banks  as  would  not  obt  lin  licenses,  furnish 
and  publish  returns,  and  snl)niit  to  the  regulations  imposed  liy  law. 
The  chartered  banks  had  ^iccepted  <;overnnient  rH;.'ulatioii  in  return 
for  the  concessions  of  incorporation,  the  currency  of  tlu'ir  notes 
in  the  revenue,  assured  protection  apainst  forjiery,  the  power 
easily  to  enforce  stock  subscriptions  ami  the  like.  The  charters 
confirmed  and   limited   the   riiilit    to   issue  notes,    but    tliev  could 


t  : 

■  \ 


'Cliitf.v  on  tlic  l,a>v  nf  tlic  I'r(r(i).aitivts  of  llio  I'mwii  il.oiiiluii  is;.'0i  contiiiiis 
nil  iiieiitioii  wluitevcr  of  prerofiilives  in  rcsiiocl  to  llie  ciirreiicv  ntlicr  tlian  tlie 
cstalilisliiiiciil  111'  llip  stiiiitlaiil  of  viiliie  iiiul  the  iiiiiitiiig  ol'  specie.  The  liioli  of 
lircroyiitive  of  note  issue  in  the  jiositiM'  laililic  law  of  (Ireat  Uritiiiii  wiis  satis- 
fiicloiily  estiililisheil  tiy  Tiioke.  in  his  II  istor.v  of  I'liccs  "  Cf.  iil-'o  Wajfiicr. 
"  l»ie  (ield-  II.  Cii'ilit-tlieorieih'i-  Teel'sclun  ItiitiU  .U'lc,"  Wicn.  IsiW.  p)).  Ck'i,  m  S4. 

Conflrniution  of  the  piiiuiplcs  .just  foiniiiliiliil  in  tlictc.M  will  he  foiiiul.  lor 
the  ;irst,  In  the  |ireanilile  of  the  act  to  protect  the  piililic  iiyiiinst  ln.|iir\-  from 
lii'ivato  1  milks,  qiioteil  on  p.  74  :  for  the  seconil  in  the  stiitiniei its  ol  tlic  petitions 
for  incorporntloii  preseiiteil  to  the  Icsrislatiire  of  I.,owcr  Cannila  in  ly.'l.aiul  in 
till'  preuiuDles  of  the  charters  passed  in  answer  to  the  pia.vers,  p.  '„'?,  t:ui,iii. 


198 


Tlic  Cantnlijn  Pxiiiiynuj  S;/s/cn>,  1817-1890 


not  depute  it.  Fdi'  the  Lowit  Caiia.ia  liank«,  ;it  least,  it  was  a  pie- 
existiiijr  rijiht  wliidi  tiiey  had  already  exorcised.  The  lirst  proposi- 
tion iiTii>lied  hy  ]Mr.  (udt  is,  therefore,  not  to  he  aceejited.' 

In  llie  second  place,  the  p.)wer  to  issiie  a  (idiiciary  currency  cfui- 
oiirrently  witii  the  hankw,  or  even  tlie  ri;;ht  tn  emit  a  lej:al  tender 
pi'.per,  had  never  heen  indejiendently  exercised  hy  a  Canadian  pi>v- 
ernment  either  het'ore  or  after  the  I'nion.  Tlie  .\riny  Kills  of  1^1-- 
!■")  are  not  a  jiertiiient  ease,  inasiuiich  as  in  that  alTair  tlie  initiatory 
steps  were  taUen  hy  the  coininander  of  the  troops,  sent  out  fr<jin 
Knjriand.  and  the  tiansa(^tions  {'oniiiieted  laijzely  nnder  his  direction. 
What  tiie  local  lettislatiires  did  was  to  ;.'ive  the  hills  onrrency.  1  will 
not  deny  that  the  ritrht  existed,  for  in  Nova  Scotia  tliere  w  iTe 
outstanding:  some  l'l(iO,(;(io  of  jjroyincial  notes,  whicii  were  a 
legal  tender  nnder  certain  circumstances  in  ]iayment  of  dehts 
line  hy  tiie  ^'overnment.  I'>ut  to  the  theory  of  its  ])ossession 
hy  the  I'piier  Province  hetore  the  I'nion,  the  refusal  of  the 
imiierial  authorities  in  IS,19  to  allow  the  issue  of  le^ral  ten<ler 
notes  jjayahlt'  in  one  year  after  date,  is  a  serious  ohstacle  <if 
fact.  Lord  Sydenh.un's  jiroposals  in  is4i  were  for  the  creation 
of  a  Iiank  of  Issue,  not  ol  a  currency  issued  directly  hy  the  jzovern- 
nient.  'I'lie  neari'st  apjiroach  to  .Mr.  <ialt's  schi>nie  was  the  device 
employed  hy  .Sir  l'"rancis  Ilincks  in  !s-|S-4'.t,  vi/..  tiie  payment  of 
current  dehts  of  the  jiovernment  in  f.hort  date,  interest-hcarinj; 
clehentures  for  small  sums,  negotialileoiUy  under  par.  Yet  tliis,  or 
anything  else  revealed  hy  rather  careful  research  inta  tlie  liistory 
of  Canada  jirevious  to  lS(i(i,  will  n(jt  satisfactorily  estalilisii  tiie 
actual  existence  of  a  jrovernnient  riglit  to  emit  fiduciary  currency. 
Much  less  will  it  justify  tlie  pretence  of  a  <:overnnient  prerogative 

'I  ill) I  iiwiuc  that  this  i"]siii(in  isiiiiite  (ipposcil  to  lliat  lieM  liy  tlicliitc  I'niiiii'r 
of  the  Doniiiiioii,  Sir  ,l(ilin  .\.  Macdorialil  S|ic;iliiiif2-  to  Ilic  Ilduso  of  roiiiiiioiis 
Hie  Itli  April,  isso.  in  reply  ti.  Mr.  Mills,  of  Itiitlnvcll,  upua  the  currency  resnlii- 
tions  liroiiyht  down  by  tlie  Miiii>ter  o'  liiiiince.  Sir  I.eom>:ii  Tilly,  he  s^iiitl :  "  11' 
it  was  ailini'.ted  tli;it  tlie  Siiiiie  powi'r.  sovcicifiiily  and  natidn,  had  the  ri;;ht  to 
issue  frohl  or  any  ntlier  oiieuliitinji'  nicdiuiii,  it  must  of  neeeissity  have  the 
rijflit,  11  it  fliose  to  elailii  it,  of  Issuing'  "hat  vv,,,-  i.imil  \n  (fold  midsilver."  Then, 
after  a  reference  to  the  iindisnuted  preid>!ali\  e  of  the  state  to  picpine  or  cmise 
to  be  prepared  coins  of  (fold,  siher.  copper  or  what  not,  and  (rhe  tlu'iii  le(fHl 
currency,  "  If  jiaper  promise-!  to  jiay  were  accepted  as  niuul  to  jiold  and  siher. 
tlie  arnunient  was  eleaiv"  He  had  ahvii.N  s  thou(fht  the  people  and  the  (i-ovein- 
nient  synonymous.  The  banks  had  noxesled  lijfht  to  issue,  the  ii»ht  to  make 
money  is  in  the  Crown  in  tin  people.  It  was  a  matter  of  (iraee,  of  e.\pe- 
dieney.  ol  le(fi.-liition.  b\  which  the  Crown  Uii\e  up  a  portion  of  its  exclusive 
riffht  to  issue  what  is  called  mone\  to  the  banks,  whether  privute  or  tinldic." 
—  Hut  it  is  easy  to  jud(fe  from  this.  how.  by  :i  false  analo(fy.  the  (irciit  states- 
man confused  money  with  those  instruments  of  iTedit  which,  in  a  pc^pular 
sense,  are  (lit  en  spoken  of  as  money,  and  are  conventionally  used  in  sulisl  itution 
for  it.  Itesliiiff.  as  it  does,  upon  this  fallacy,  even  Sir  ,lohn  Macd  iimld's  reason- 
injf  cannot  be  approved.  We  must  still  re.ieel  the  theoi'y  of  a  crown  preroffa- 
tive  of  issue. 


lUn,k  Xoli'  hsiii'  (1)1(1  Stifle  /'/■('cni/d/ici 


199 


of  note  issiu'.     The  st'cniid  proiiositioii  iniplieil  liv  ^(r.  (i;ill  fails  as 
coiiu>l*'tely  as  his  lirst. 

For  tlic  (liscnssioii  of  a  haul;  note  cmrcncy,  or  of  any  currency,  it 
is  inilisiiensalile  to  rest  ni 


m  the  I'orrect  theoretica!  am 


\\  hasis 


Once  it 


reciiL'nizeci  that  tiit>  Imsine^s 


issiiin.i:  noti's  fdr  rircnla- 


tioii,  p'oinisiii^  payment,  ami  payalile  u\>i>u  ilemaml,  is  essentially 


similar  til  anv  litlier  business  in   instiunient 


s    Ol 


foinis  of  creilit- 


once  il    ^s  seen  that,  histuric 
f 


anil   practically,  !iote  issue   is  n( 


more  a  iiieroi'ative  of  ''oveiiniient  than 


life 


insurance,    receivmi; 


deposits  al  call,  nr  (Irawinj;  foreij:n  exchanu'e,  the  way  is  ham  il  to 
nia!iy  a  fallacy  and  delusion.  The  cry  that  "the  protit>  ot  the  cir- 
culation should  helontr  to  the  <_'overniiient,"  then  ajipeai^  im  less 
riilicnlous  tlian  the  jilaint,  "the  profits  of  the  Hour  mills,  the  shoe 
factories,  the  huililint:  societies,  should  belou};  to  tlie  irovi'rnnient." 
The  business  uf  note  issue,  ri<.'htly  I'onducted,  rei|iiiies  capital  just 
as  other  ecnnomic  activit  ies;  like  them,  it  pays  prulits,  f<jr  tlie  saving- 
of  the  interest  on  a  curreiu'y  of  intrinsic  value  accrues,  in  the  first 
instance,  directly  to  tin-  issuers.  The  ]iulilic,  huweve'-,  derive  advan- 
tage from  this  savinjr,  as  they  <:ain  from  other  ecomnnies  and  im- 
provements in  production,  viz.,  tlirou<:h  the  reduced  costs  at'  ])ro- 
dnctioii  and  the  conseipient  lnwer  i>rir(>s  to  consnnu'rs.  'I'hose  who 
deal  witii  tlie  banks  j:et  their  services  at  rates  wliieii,  without  tlie 
issiu'  profit,  would  be  imiiossible.  With  those  who  do  not  so  deal, 
the  grains  of  those  who  <lo  are  divided  throujrh  the  cheapenin.L'  of 
the  commodities  exehanjrt'd  or  pi'oduced  with  the  assistance  of  the 
hanks.  Under  a  ri'</ime  of  competition,  tiie  capital  investe<l  in  a 
bank  of  issui- cannot,  in  tlie  long  run,  earn  a  hij:her  return  than  other 
capital  invested  at  eqtiivalent  risks. 

The  contracts  which  result  from  issue  operations,  must  be 
enforced,  like  other  contracts,  by  the  legal  and  judicial  organization 
of  the  state.  To  provide  for  the  security  of  such  contracts,  jirevent 
frauds  and  avert  imblic  injury,  the  government  may  regulate  and 
supervise  the  note  issue  as  it  does  the  operations  of  common  car- 
riers, insurance  compani  d  ami  monied  corporations  of  other  kinds. 
The  gain  from  the  note  issue,  in  common  with  other  income,  will 
be  a  legitimate  subject  fnr  taxation,  but  not  for  such  as  vitdates  the 
canons  of  eijuality  and  uniformity.  If  a  neci'Ssitoiis  government  is 
constrained  to  dei'ive  greater  revenue  from  the  note  issue  than  is 
possible  by  leaxingit  in  private  hands,  it  may  by  the  exercise  of 
sovereign  power,  exclude  all  but  itself  Crom  this  dejiartment  of  eco- 
I'.omic  activity.  This  practically  is  what  many  European  states 
have  done.  Hut  those  who  gtiide  a  nation's  po'icy  may  well  weigh 
carefully  the  coinmei'cial  disadvantages  attendingsmdi  a  usurpation, 
and  tlie  tendencies  towards  forced  circdiation,  fiat  money,  depreci- 
ation and  repudiation  w  hieli  it  is  likely  to  release. 


;  m 


■■  J>  ■■:) 


p 

■m  ■ 


mi' 


CHAPTER  VI 


NEW  BRUNSWICK  AND  NOW  SCOTIA 


Im  »f 


§M8. — THE    UAXK    CHAKTEKS    01'    NEW    URUNSWIt'K 

The  first  bank  established  in  this  province  was  char- 
tered as  the  President.  Directors  and  Company  of  the 
Bank  of  New  Brunswick,  b}-  an  act  of  the  local  leg- 
islature, wliicli  received  royal  assent  the  25th  March, 
1820.  As  expressed  in  tlie  preamble,  it  was  the 
opinion  of  the  House  of  Assembly  that  '-the  estab- 
lishment of  a  bank  in  the  cit}'  of  St.  John  will  ]»ro- 
mote  the  interests  of  the  Province  by  increasing  the 
means  of  circulation.""  (()(>  Geo.  Ill,  cap  \'^.  N.B.) 
The  cai)ital  stock  was  limited  to  .t'.")0,000,  and  the 
payment  of  the  whole  required  within  eighteen 
months.  In  1821  the  stock  limit  was  reduced  to 
£30,000.  and  four  years  later  raised  again  to  t'50.000, 
on  "account  of  the  increase  of  the  trade  of  the  Prov- 
ince."" The  President,  Directors  and  Company  of 
the  Charlotte  County  Bank,  to  be  situate  at  St.  An- 
drews, were  incori)orated  in  1825,  with  a  capital 
stock  of  t'lo.OOO,  all  to  be  i)aid  up  within  a  year  and 
a  half.  (2  (leo.  IV,  cap.  20.)  Both  these  banks 
were  smaller  than  those  established  in  ^lontreal. 
Quebec  and  York  in  1817,  1818  and  1822,  and  it  is 
manifest  that  they  were  inteiuled  to  be  local  affairs, 
but  the  New  Brunswick  charters  are  different  a\ 
only  a  few  essential  respects  from  those  i)assed  in 
Upper  and  Lower  Canada.     The  limitation  upon  the 


Tlif  Hank  C/iarler.s  of  yew  Brnnsvu'ck 


201 


total  debts  wliich  miglit  be  owed  by  these  corpora- 
tions was  more  strict,  being  twice  tlie  amount  of 
their  paid-in  capital  stock,  and  the  term  of  tlieir  char- 
ters was  twenty  years.  In  18:54  the  Central  Hank 
of  New  j^runswick  was  incorporated,  and  provision 
made  for  establishing  it  at  Fredericton.  (4Wm.  IV, 
cap.  44.)  The  act  of  incor])oration  contained  a  num- 
ber of  new  j)rovisions  similar  in  effect  to  those  re- 
commended by  the  Committee  for  Trade  of  His  ]Maj- 
esty's  Privy  Council  in  18l}()  and  183:5. 

No  bank  bill,  c.  </.,  was  to  be  issued  until  £7, 500 
(one-half  the  authorized  stock)  were  paid  in.  The 
Governor  was  empowered  to  ai)point  commissioners 
who  should  count  the  monej'  in  the  vaults  and  ascer- 
tain whether  it  were  bonu  fide  capital.  (This  author- 
ized stock  was  raised  in  ISJKi  to  t'50.000.)  The 
stockholders  were  made  chargeable  in  their  private 
and  individual  capacities  for  the  i>ayment  and  re- 
demption of  any  bills  issued  by  the  corporation,  and 
for  the  payment  of  all  debts  at  any  tim(!  due  from 
the  corporation,  in  })roportion  to  the  stock  they  should 
respectively  hold,  but  not  to  exceed  the  amount  of 
the  stock  actually  held  by  them,  nor  in  exemption  of 
the  joint  stock  of  the  corporation  from  liability  for 
its  debts  and  engagements.  Loans  on  the  pledge  of 
the  bank's  own  stock  were  forbidden.  Provisions 
were  introduced  with  respect  to  the  distribution  of 
the  capital  stock  and  ]iroHts  among  the  sliareholders 
in  case  of  dissolution  of  the  bank,  and  to  the  contin- 
uation of  their  liability  to  redeem  the  notes  in  circu- 
lation for  two  years  and  no  longer  after  the  date  of 
the  dissolution.  Debts  of  the  directors  to  the  bank, 
either  as  principals,  sureties  or  indorsers,  were  limited 
to  one-third  of   the  paid-in   capital  stock,  and  semi- 


fl 


t  > 


1 


!£!-' 


ri 


h 


l^^-l 


202 


Tlif-  Caundidn  lianlnim  Si/s/e»i,  1817-1890 


6«  iif 


fc  V 


n\ 


J- 


aiimuil  returns  to  the  Sccrctai'.v  of  tlic  ]»i'»)vinc('  were 
required.  No  note  or  liill  offered  for  disccHUit  was  to 
l)e  ex(duded  l»y  a  siiit;Ie  vote.  A  list  of  tlie  delin- 
(Hients  was  to  Ix'  funiislie<l  to  tiie  hoard  ui)oii  <lis- 
count  diiys.  and  the  jiresenee  of  liis  name  in  tlie  list 
was  to  dis(|nalify  any  director  from  sitting"  on  tiu' 
hoard. 

In  1S;M  tlie  Commercial  I'ank  of  New  I'.runswick 
was  iin-orporated  hy  letters  patent.'  The  charter  of 
the  "^t.  Stei)hen's  Bank  jiassiMl  in  ISHCi  ((>  \Vm.  IV. 
caj).  '-VJ)  ci'eated  a  corpvji-ation  capitalized  for  i-J."i.()(>o 
and  suhjected  to  the  ])i'ovisions  already  descrihcd.  It 
added  the  rules  that  no  stockholder  should  own  more 
than  twenty  per  cent,  of  the  capital  stock  and  that 
'•no  action  shall  he  hrouj^ht  oi-  maintained  upon  any 
bank  hill  or  hank  note  issued  by  thi'  corporation,  be- 
fore such  bill  or  note  shall  liave  been  jiresented  at 
tlie  bank  foi-  payment,  and  default  in  jjayment  thei-e- 
upon  shall  take  place."  Upon  shares  seized  and  sold 
under  execution,  the  bank  did  not  enjoy  the  prior 
claim  for  stockholder's  debts  which  it  could  enforce 
before  transfers  of  stocks  in  other  ways  became 
valid.  The  limitation  upon  total  debts  was  altered 
by  excluding-  dei)osits  from  the  amount  which  should 
exceed  twice  the  cajjital  stock  paid-in.  The  City 
Bank  was  incorjiorated  the  same  year.  Its  lecatiou 
was  to  be  St.  John:  its  capital  £100. 000,  half  to  be 
paid  in  one  year,  and  luilf  within  five  years.  But  the 
City  Bank  had  a  short  existence.  The  Bank  of  New 
Brunswick  received  i»ermission  to  double  its  capital 
in  1837.  and  was  subjected  to  new  provisions  similar 
to  those  detailed.     (()  Wm.  IV,  cap.  .")7.)     By  an  act 

'Acts  of  tho  <i*'iieral  .^sseiiilily   of  tlie  Province  of  Now  Unuis- 
wick,  IS"):),  p.  si. 


The  Hank  Chartrrs  „f  ye,r  Hmnsirick 


•J0;3 


of  JS:5!.  tlH.  City  Bank  was  u„ite<l  to  th..  iJank  ..f  X.w 
i!runsw]c-k  and  iiio-ovd  vvitliin  it.     ^2  Vic.  cap.  '>Vk  ) 

The  year  ]S:}7,  liovvever.  was  ,u,t  altourthrr  ,m,.  ..f 
(liniinish,.(I  l.ankino-  ,-omp,.tition.     Tlu-  l«-islat  .in-  in 
tins    s..ss,(.n     orant,.,l     tl.e    Hank    of    |{,itisl,    Xo.tl, 
America   powers   f.  sne  and   I.e  sued    in    the    nnnn- 
of  a  I.K-al  oflic.T.  and  facilitah.l  its  l.nsiness  in  other 
ways,     u^   \V,„.   IV.  ,.ap.  ],;.)     Afterwards.    I.etween 
IMl  and  ISOC.  various  additions  to  the  capitnl  sto<-k 
ot  the  four  ...xistino-  hanks   were  permitted,  an-l  their 
charters  extended    to   .kites    h<tween    I.STO  and    iNT*;. 
Tlie  Shediac  Hank  was  incorporated  in  ls:.T,ii)  \ic 
cap.nCM.  the.Miraniichi]iani<in  iSAK^o  vj,.     ,..,,,   .),s," 
and  the   IVoph.-s   Hank  of  New   J5runswick   in    l^^dl" 
The  Miramicln-   Bank  was  proposed  f..r  Chaihain.  X. 
B..  and    tlu"  authorized    capital   was    lid.noo.      The 
Pcoj.le-s  Bank  was  estahlished  at  Kred.'ricton  .vith  a 
capital  stock  of  sdo.ooo. 

In  this  an<l  the  subsf^quent   le-isiation.    provision 
was   made  for  increasing-   the   caj.ital    stock    of   the 
hanks  upon   tlie   initiative   of   tlu"   shan-holders   an.l 
w.tln.ut  furtlier  legislative  sanction.    New  stock  was 
always,  according  to  law.  to  he  disposed  of  at  auction 
and  the  premium  paid  upo!.  it  divided  i>rn  r,il<,  among 
new  and  old  sharehohh-rs.     But  in  other  res-ects  the 
bank  charters  granted  in  IS.'.O.   ls:.7  an<l  K^lu  an-  in 
no  way  different  from  those  of   ls:!4  and    is:{(;.      All 
the    hanks,   however,  had   heen   forbidden    bv   an  act 
of  1888  (1  Vic..  ca]>.  18 ,.  to  issue  notes  of  a  less  denom- 
ination than  five  shillings  or  notes  of  .len<.minations 
not  multiides  of  that  sun..      For  violation  of  tin-  act 
there  was  imposed  a  penalty  of   e-r..  recoverable  in 
courts  of  competent  jurisdiction    by  the   first    person 
suing  therefor,  <me-half  for  himself  and   one-half  to 


IP 


m 


iw 


204 


The  dinmilian  Btuikinr)  Sjixli'm,  1817-1890 


P 


\^\    i! 


f  :i 


tlu'  use  of  tlic  i»rovince.  Receiving  the  notes  and 
checks  denounced  hy  the  act  rendered  one  liahle  to 
forfeit  a  sum  equal  to  the  nominal  value  of  the 
instrument. 

Some  years  previous  to  1S(».'>,  the  Charlotte  County 
Bank  ceased  its  operations  and  husiness  and  paid  off, 
so  far  as  they  had  heen  presented,  all  claims  upon  it. 
In  the  year  named  it  was  authorized,  after  newspaper 
notice  for  twenty-four  months,  to  wind  up  its  affairs, 
and  divide  the  assets  remaining  among  the  share- 
holders, the  further  liability  of  whom  for  the  debts 
of  the  bank  was  thei'eupon  to  cease  and  determine. 
(2S  Vic,  cap.  44.)  A  similar  act  was  passed  in  1808 
with  respect  to  the  Central  Bank  of  New  Brunswick. 
(:U  Vic,  cap.  ;■)(').)  In  the  sessions  of  1805  and  1867, 
on  the  contrary,  the  establishment  of  a  number  of 
new  corporations  was  authorized:  the  Albert  Bank, 
th(>  Woodstock  Bank,  the  Northern  Bank,  the  Mer- 
chants' Bank  of  New  Brunswick  and  the  Eastern 
]5ank  of  New  Brunswick  were  all  granted  charters. 
I  am  not  aware,  however,  that  to  any  of  these  under- 
takings was  subscribed  and  paid  the  capital  required 
l)y  law  before  they  could  begin  business.  In  this 
they  were  as  unsuccessful  as  the  Miramichi  and 
Shediac  banks  of  tne  preceding  decade. 

At  the  time  that  New  Brunswick  entered  the  Con- 
federation the  I'ank  of  New  Brunswick,  the  Commer- 
cial Bank  of  New  Brunswick,  the  St.  Stejdien's  Bank 
and  the  People's  l^ank  were  in  operation,  the  West- 
moreland Bank  in  liquidation,  and  tlu'  five  other 
charters  just  named  were  still  available. 


4i 


Nora  Scotia 


iV 


•205 


^34. — NOVA    SCOTIA 

The  Banks  in  Nova  Scotia  were  neither  so  many 
nor  so  okl.  The  establisiinient  of  a  bank  at  Halifax 
liad  been  mooted,  to  be  sure,  in  18(11.  and  i'.^O. OUU  of 
the  capital  subscribed,  but  it  was  jjroposed  in  tins 
connection  that  no  other  bank  should  be  established 
by  any  future;  law  of  the  province  durinj^  the  contin- 
uation of  the  cori)oration.  'J'lu'  feature  of  nionoi)oly 
was  i)robably  fatal  to  the  i)lan"s  success.' as  tlic  bank 
was  not  started.  Another  project  for  a  joint  stock 
bank  was  published  by  the  Halifax  Committee  of 
Trade  in  February,  bsil.  but  no  actit)n  was  taki'u  in 
the  matter  by  the  Assend)ly.'-'  In  182.").  however,  ji 
private  bank  of  issue,  discount  and  deposit  was 
staited  in  Halifax,  the  advei'tisement  '>f  opening. 
ui)on  the  Jkl  Septembei'.  being-  si^iu'd  by  eight  part- 
ners."' This  was  the  Halifax  IJiinking  (Company, 
which  in  J87'i  was  sold  out  to  the  i)resent  cliai'tered 
bank  of  the  same  name. 

There  can  be  little  doubt  that  the  extension  of  the 
banking  system  >vas  somewhat  delayed  by  the  circu- 
lation, as  money,  of  the  Treasury  notes  of  the  pro- 
vince. Since  IS  12  tin;  i)rovince  had  had  in  tliese  a. 
paper  currency  which  was  seldom,  in  large  amounts, 
immediately  convertible  into  specie,  and  never,  in 
l>oint  of  elasticity,  comparable  to  a  bank  note  cii'cu- 
lation.  Yet  it  sufKced  to  work  a  certain  economy  of 
specie,  to  give  some  help  to  the  Treasury,  and  to 
serve  the  colonists  as  a  medium  of  exchange  at  a 
time  when  the  specie  circulation  w:;  ;  neither  abund- 
ant, uniform  nor  satisfactory.' 

'Murdocli,  "  History  of  Nuva  Scutia,"  vol.  iii,  y.  -n'l. 
•  Ihid,  p.  ;;ns. 
'Ibid,  J).  r);5s. 

'The  principal  details  of  the  Treasury  Notes  lcj:islation  are  Lnveii 
in  the  note  at  the  end  of  this  chapter. 


II 


^i 

^ii^ 


! 


!■'■ 

■  !?' 


m 


$ 


* 


'iiW 


Tlir  ('(ni(iili(t)i  lidhkiiKj  Sfislp))),  1817-1890 


Kinally.  the  legislature  hecniiie  coiivincod  tliat  the 
••  (  staldisliiiieiit  ol'  a  imlilic  i)aiik  will  i)e  j;reatly  ad- 
\  ;iiila^((»iis  t(»  trade  and  coiimierce,  jind  otiiei'wiso 
advance  the  interests  (d'  the  jtrovinee  hy  iiicreasiiifif 
tiie  eircnlat iii;^'  nie(liiim  of  husiness.  and  proniotinfjf 
a  mure  extensive  and  henetieial  enipiuynient  <d'  tl\(> 
i-esoiirces  an<l  industry  of  all  tdasses  of  its  inliahi- 
tants."'' 

To  tint  her  su<di  purposes,  and  to  j^rant  the  prayer 
of  certain  iiet  it  ioners,  the  J>ank  of  Nova  Scotia,  tho 
lirst  chartered  liank  in  the  province,  was  incorpo- 
rated hy  an  act  ajiproved  the  :!(ith  IMarch.  ISI^i.  (2 
Win.  I\'.  cap.  r»(>.  X.  S.  I  Its  authorized  stock  was 
t'JtIo.dOO  in  ri. (»()()  shares  of  l'.")!)  each.  JUisiness 
nn.n'ht  heoiii  wliea  faO.OdO  wei'e  suhscrihed  and  i)aid 
up  in  s]iecie  oi-  Treasury  notes.  liUnd  niij^ht  he 
owned  in  fee  simple  to  tlu'  value  of  t'H.OOO.  Hut 
loaning-  upon  the  hank's  own  stock,  upon  mort^aj^e 
or  ui>on  real  estate,  was  i)rohihited.  Each  director 
was  re(|uired  to  hold  twenty  shares,  and  nui^ht  not 
he  a  director  in  any  other  hank  either  within  or 
without  the  province.  Shareholders  with  one  to  two 
shares  liad  one  vote.  Foi*  more  than  two  shares  they 
voted  according  to  a  scale  hy  which  the  holder  had 
one  vote  for  each  two  shares  ahove  two  and  not  ahove 
twelve,  for  each  three  ahove  twelve  and  not  ahove 
thirty,  one  vote,  and  for  each  five  ahove  thirty,  one 
vote:  hut  no  shareholder  was  allowed  more  than 
fifteen  votes,  or  to  hold  nn)re  than  three  proxies. 

In  case  of  loss  or  deficiency  in  the  (capital  stock  of 
the  hank  on  account  of  the  oflficial  mismanagement 
of  the  directors,  the  shareholders  were  liable  for 
dehts  of  the   hank   in  their  private   and    individual 

'  Vide  preamble,  i'  \Vm.  IV,  cap.  .")0,  N.  S. 


I 


Xora  Sroliti 


807 


caitacitics.  Ixil  not  liahlc  to  pay  ;i  sum  excccdiii^-  tlu> 
aiiioimt  of  stock  JictUiilly  licid  l)y  tliciii  iTspcctivfly, 
ill  addition  to  the  stock  so  Indd.  This  was  tlic  Nova 
Scotiiiii  cxprcssioii  for  the  douidc  lialiility  of  sto(d<- 
Inddcrs.  adoittc(l  by  New  Uniiis\vi(d<  in  sli;;iitly 
different  |iliriise  a  few  years  later.  The  d<d)ts  of  tlie 
coritoration,  exchisiv<'  of  tiie  sum  due  on  acc<)iint  of 
(h'posits.  were  limited  to  thrice  the  amount  of  the 
capital  stock  paid  in.  As  in  Xew  |)ruiiswi(d<.  tiiis 
restriction  was  the  only  limit  upon  theaiiioiint  of  the 
notes  whi<'h  mi^lit  he  issued.  In  case  of  <'\cess.  hotli 
tlie  corporate  ]»roperty.  and  the  directors  in  their 
individual  and  several  capacities,  were  to  he  liahle. 
'I'he  hills  and  notes  of  the  corjioratioii  were  to  he 
l>ayahle  on  demand  in  <;-old  and  silver.  Notes  for 
less  than  twenty-six  shillinj^s  were  forhiddeii.  If  the 
hank  should  refuse  to  redeem  its  notes  in  specie,  it 
incurred  the  ix'ualty  of  paying  interest  at  l!2  \)vy 
cent.  i)er  annum  ul)oii  llieir  facevahu",  from  the  time 
of  refusal  to  the  time  of  i»ayment.  A  statement  of 
the  hank's  affairs  was  to  he  niadetothe  annual  meet- 
in^'  of  the  shareholders,  and  a  copy  sent  to  the  Sec- 
retary of  the  province.  Either  hy  order  of  the  (lov- 
ernor-in-C'ouncil  or  hy  a  joint  committee  of  the 
Legislative  Council  and  House  of  Assembly,  the 
bank  mi<;lit  be  investi}.;ated.  And  if  it  shonld  then 
appear  that  the  capital  stock  had  been  diminished  by 
loss  and  bad  debts  to  half  the  sum  snbscribed.  it  was 
provided  that  ihe  corporation  should  be  dissolved. 

Such  were  the  important  provisions  of  the  lirst 
bank  charter  passed  in  Nova  Scotia.  The  structure 
of  the  corporation,  its  powers  and  the  restrictions 
upon  it  were  of  the  same  general  type  as  with  the 
banks  of  the  other  provinces.     There  is  no  need  to 


;  t 


'■m 


h''' 

3  :i 


k$ 


{:F. 


'-'08  The  Camditin  llanki))(i  Si/sfrm,  1817-181>0 


i 


|i  ' 


I     '■ 


(U'scril)(i  in  compU'tc  (U'tiiil  lej^islatioii  so  like  that 
already  familiar.  liut  in  (a)  the  stipniatiens  for 
l)ayment  of  capital.  {!>)  the  donhle  liability  of  share- 
holders, (r)  the  mininunn  placed  ujjon  the  denomina- 
tion of  hank  notes  issned.  {(I)  the  i)enalty  for  sus- 
pending' specie  payments,  and  in  (c)  the  provision  for 
windinjif  up  the  hank  in  case  the  stock  were  badly 
impaired,  the  charter  is  distinctly  in  advance  of  any 
previously  passed  by  other  British  North  American 
provinces,  and  in  force  in  \S',i'2.  In  tlie  first  three  of 
these  peculiar  restrictions,  the  reader  will  unques- 
tionably detect  the  iuHuence  of  the  suj^gestions  made 
by  the  Connnittet^  of  the  Privy  Council  for  Trade  in 
1830.  The  i)urpose  of  the  fourth  and  fifth  is  evi- 
dently the  same  as  that  sought  by  the  imi)erial  au- 
thrities,  viz.,  maintenance  of  redemption  and  preser- 
vation of  a  capital  guarantee,  but  the  means  most 
closely  resemble  those  adopted  in  the  legislation  of 
Massachusetts. 

For  tive  years  the  Bank  of  Nova  Scotia  was  the 
only  chartered  bank  in  the  province.  In  its  first  ten 
years  it  divided  among  the  shareholders  ])rotits  at  the 
average  rate  per  annum  of  tS.'j  per  cent,  of  its  capi- 
tal, and  increased  that  capital  to  f  140, ()<)().'  After 
1842,  however,  dividends  rarely  exceeded  U  ]>ercent. 

One  reason  was  the  competition  of  the  Bank  of 
British  North  America,  which  had  begun  business  in 
Nova  Scotia  in  Ib'iT,  and  secured  the  right  to  sue  and 
be  sued  in  the  name  of  a  local  officer  in  IHIJS.  (1 
Vic,  cap.  24.)  Then  there  was  the  statute  of  1834 
(4  \Vm.  IV,  cap.  24),  which  prohibited  the  issue  of 
bank  notes  for  sums  less  than  fo,  and  thus  ciosed  to 

'.Touniiil  of  tlu!  House  of  AssciiiMy  of  the  Province  of  Nova 
Scotia,  184(1,  Appendix  IS. 


Xoca  Sroliti 


!2oe 


the  hunks  the  proHtabh'  and  important  Wusinoss  of 
circuhitin^  the  one  and  two  pound  notes  lu'cossury 
for  retail  exchanges.  It  also  j)rovi(led  tliat  all  hank 
notes  should  h<;  made  pavahle  in  gold  and  silver  to 
the  amount  of  their  face  value  to  the  hearei-  or 
holder  of  the  undertaking  and  uj)on  demand,  or  hear 
interest  at  I'i  per  cent,  per  annum  from  the  day  of 
refusal  to  the  day  of  final  ])ayment.  Notes  payahlo  to 
real  or  fictitious  persons  and  transferahle  hy  indorse- 
ment were  made  negotiahlo  hvdeliverv  merelvand  the 
indorsement  declared  nnnecessarv.  The  ))enaltv  of 
.I'lO  imposed  for  each  note,  hill  of  exchange,  draft  or 
check  issued  for  less  than  l';").  was  recoverable  by  ac- 
tion for  debt,  oni'-half  to  the  prosecutor  and  one-half 
to  the  Crown.  Forgery  of  the  notes  was  punished  by 
not  more  than  seven  years  in  the  Hridewell  at  hard 
labor,  and  all  the  costs  of  prosecution;  theft,  by  tlu^ 
same  penalties  as  were  imjtosed  for  stealing  other 
things  of  ecjual  value. 

Ant)thei'  cause  of  the  lower  prolits  of  the  Bank  of 
Nova  Scotia  may  be  found  in  the  constitutional  strug- 
gle which  was  carried  on  in  the  province  in  the  earlier 
part  of  this  period,  and  the  commei'cial  disturbances 
due  to  it.  To  compid  the  executive  annually  to  con- 
veuu  it,  the  legislature  adopted  the  polic\-  of  con- 
tinuing necessary  acts  for  one  or  two  years  only. 
Between  1841  and  184(5  the  charter  of  the  Bank  of 
Nova  Scotia  and  the  amending  act  of  7  Wni.  IV.  were 
thus  continued  no  less  than  five  times,  in  ordei- 
annually  to  prevent  their  expiry. 

At  last,  iu  1847.  the  charter  was  continued  for  ten 
years.     The  form  of  semi-annual   returns  to  the  gov- 
ernment i-ecommended  by  the  Lords  of  the  Tieasury 
was  adopted,  and  the  jtenalty  of  charter  forfi-iture 
14 


Ml 

m 


' '  ill 


'III 


■^h 


!    I 


210 


'/'//(■  C'liiiiHlidii  liiiid'imi  Si/.s/eni,  iSlT-lbOO 


V  ;*li    I 


iinpoHc'd  for  note  issue  in  cxcrss  »»("  the  stiitiitory 
limit  (thrice  the  cjipiliil  slock  |>ui<l  up).  (KtX'ic. 
Ciip.  .'iT.  X.  S.)  The  chillier  was  jiKJiiii  exteiKh'd  in 
isnC)  for  a  jieriod  of  ITt  yciii's.  and  permission  niiinled 
to  increase  the  capital  stocl<  to  LKMi.Ooo.  (ID  Vic, 
(•a]>.  !(.").)  liy  another  act  of  the  same  session,  the 
legislature  incorporate<|  the  I'nion  Uank  of  Halifax. 
In  l.sr»',)  the  liank  of  Yai'm(»uth  was  chartered:  in 
IS(;4  the  I'eoplo's  Hank  (d"  Halifax,  and  the  Mutual 
l>ank  of  Nova  Scotia:  and  in  lS(i.")  the  ('ommercial 
l»ank  of   Windsoi'.' 

These  lalei'  charters  i-epeated  almost  n'lhaliiii  the 
provisions  of  the  amended  act  f^'overninj.;'  tiie  iJank 
of  Nova  Sco^^ia.  The  hankin;;'  system  as  nrij^inaliy 
worked  out  caused  so  fi'w  dillicult ies  and  i)romoted 
so  mu(di  the  convenience  and  prosperity  of  tiu'  c<d- 
onies.  that  they  felt  veiy  little  temptation  to  change 
it.  The  hanking-  history  of  Nova  Scotia,  iherid'oi-e. 
is  not  eventful.  The  private  hanks  cari'ied  on  all 
braiudies  of  liaidcing'.  includinj;'  note  issue,  in  com- 
petition with  the  chartered  hanks.  Theii'  proprietors 
were  men  of  wealth:  they  enjoytMl  the  contidence  of 
the  community,  and  con<lucted  their  business  accord- 
ing to  recot^ni/eil  liankinj;'  piinciples.  The  cuirency 
law.  with  its  penalty  for  suspendinj^- specie  paymeut, 
sufficed  to  kcei)tho  note  circulation  secure  and  within 
proper  hounds.      Down    to    1S7)}   a    hank   had   uevei- 


'For  tliesjf  tmnkatlie  rluiiter.s  ]Movitled 

Auilioi-iziil  Cliiii'tor 

C'lipitiil  lOxpirt's 

Union  liank  of  Halifax l'L'.")(i,00(l  isTl 

Excluui^'e  Bank  of  Yariniiuth       5(1, ( IS71 

People's  iJank  of  Halifax $40(),U00  IS7!i 

Mutual  I'.ank  of  Nova  Scotia.  l,00(i,(i(J(i  ISWi 

Commercial  Bank  of  Windsor    •JiiO.Oiin  18S.") 


It('(|iiii'i'il  to 

lie  piiiil  II  ji 

lii'loic  hcxiii- 

iiiiiH:  biisini'ss 

.IV)(».()(I() 

1L',.')(MI 

$ilill,IIUII 

LC)(),(  1(1(1 

.■)0,(l(l() 


"  rw'l 


lu'Jiitiitii  h)  lldid'  Li'iiishilidii  iif  till'  lUniiniiiin         'i\\ 

t'iiilt'd  ill  tlic  pruvinci'  of  N(t\ii  Scotiii.  mdi-  IkuI  tin- 
tiiij^ff  of  siispiciidi  hfcii  |Miiiit(M|  ill  iiiiy  ui"  tlu'in. 
citluT  rhai'tcictl  or  private'  W'licii  tlu-  province 
JoIikmI  t  iir  Conft'dcratioii  five  hanks  were  adiii;;'  iiii- 
i\v\'  local  charters,  vi/.;  the  I5aiik  of  Nova  Scotia, 
Maiik  of  ^■al•lnollth.  People's  liaiik  of  Halifax, 
rnion  Uaiik  of  HalifiVx,  Merchants'  l>aiik  of  Halifax 
iiiul  FiXchan^'e  Hank  of  Vatnioiitii:  the  charter  of  the 
Coniiiiei-cial  I'aiik  of  Windsor  was  still  availalde. 


t'l' 


|;|! 


;;.>.).     iji:i..\-n()N  oi"  hank  M;(iisi>.\  iion  is  tiik  mahi- 

TI.MK   I'KoVIM'KS  'l'(»    IMA  I    oK    IIIK    DOMINION 

I.  Ill  the  two  greater  provinces  whose  l)ank  char- 
ters have  heeii  discussed,  we  found  tiiat  the  first 
legislation  was  shaped  on  almost  the  same  lines  as 
that  of  the  Canadas.  Still,  the  hankiiij;'  history  of 
Nova  Scotia  and  New  lirunswick  is  much  simpler. 
The  system  oi-i^-inally  estahlished  was  sul>,jected  to 
no  such  cue !•;.;•(•  tic  and  repeated  attacks,  either  l)y 
scheming-  individuals  or  hy  the  }4dvernmi'nt  of  the 
(hiy.  as  we  meet  in  the  provinces  of  I'pper  Canada 
and  Canada.  On  the  other  hand,  we  may  detect  a 
cer^^'iin  similarity  in  the  forces  moving'  in  tiie  later 
staj^es  for  the  improvement  of  the  system.  Whether 
the  safe^uai'ds  latterly  insertecl  in  hank  charters 
were  a  purely  local  development,  is  a  (piestion  that 
luirdly  needs  to  he  raised  in  the  cases  of  Xi'W  IJiuns- 
wick  and  Nova  Scotia.  The  ccuistitutional  <;-overn- 
ments  of  tliese  pj-ovinces  were  in  no  suhstantial 
rt'spects  ditfei'ent  fi-om  that  of  tlie  Canadas.  'I'he 
eastern  colonies  were  kept  in  pi'etty  much   the  same 

Mininuil  of  the  Mouse  of  Commons,  (^anaila,  ISd'.t,   .\ppeiiilix  I, 
p.  ()"i.  Kv'dence  of  Messrs.  Rowley,  Kilhim  mid  Lewin. 


m 
"III 


■) 


[Sip!  -l 


■■■t;M 


I 


\'i 


212  7%c  Canadian  Bankimj  Si/slcni,  1817-1800 

sort  of  tutelage  by  the  Colonial  Office  in  Downing 
street  as  those  in  the  West.  We  know  that  the 
Treasury  regulations  Avere  transmitted,  as  circulars, 
to  the  colonies  generally,  with  instructions  for  their 
observance.  loi'd  John  Russell's  desjjatch  of  1S4(> 
api»ears  in  the  legislative  documents  of  New  Hi-uns- 
wick.  lleference  *o  the  actual  statutes  shows  that 
subsequently  to  the  receipt  of  the  Treasury  regula- 
tions, provision  was  made  in  bank  charters  that  the 
spirit  of  the  more  essential  rules  should  be  observed. 

II.  As  Newfoundland  is  no  part  of  the  Dominion, 
it  is  unnecessary  lo  treat  of  banking  there.  Prince 
Edward  Island,  though  within  the  Confederation,  is 
of  no  such  impoi'tance  tliat  its  banking  laws  could 
have  affected  the  measures  adopted  by  the  Dominion. 
We  may,  accordingly,  disregard  the  banking  history 
of  this  colony  until  it  becomes  a  part  of  the  broader 
study. 

III.  Even  Nova  Scotia  and  New  Brunswick,  before 
the  Confederation,  were,  in  great  measure,  self-con- 
tained communities.  Though  exporting  some  natural 
products  and  buying  manufactured  supplies  abroad, 
they  were  not.  on  the  whole,  strongly  affected  by  the 
commercial  movements  in  other  parts  of  tlie  world. 
Nova  Scotii).  for  instance,  suffered  practically  nothing 
from  the  crises  of  KSI}?  and  1857.  New  Brunswick, 
however,  experienced  severe  commercial  dejtression 
in  1S48,  in  consequence  of  heavy  importations  during 
the  preceding  jx-riod,  and  a  falling  off  in  the  demand 
for  its  i)riucipal  exports. 

Banking  was  ehiefly  confined  to  the  ;'ities  of  St. 
John  and  Halifax,  and  two  or  three  of  the  seaports 
next  in  importance.  The  other  towns  carried  on 
their  business  tiirough  the  cities.      Branch  banking 


I 


Relation  In  Bank-  Lpf/ishilioii  of  I  ho  hominioii        21.3 


had  not  yet  received  that  extension  whieh.  since 
confedci'tition,  has  brouji^ht  tlie  office  of  a  sti"on<;-  hank 
to  every  town  and  almost  every  considerahh'  villa^je. 
Besi(U's  tlie  ordinary  business  of  reccivin*;'  dei)osits, 
issuinj^  notes  and  discountini^  for  local  i)Ui-poses,  the 
banks  enjoyed  a  profitable  business  in  exchange. 
The  trade  with  Upper  and  Lower  Canada  was  small, 
but  they  bought  and  sold  large  amounts  of  bills  upon 
Boston.  New  York  and  London.  Dui'ing  the  period 
of  rocii)rocity  the  American  trade  was  es])ecially 
important,  as  that  market  for  fish  and  tind)er  was 
wide  and  active.  Indeed,  tlie  principal  business  of 
Nova  Scotia  at  this  time  was  shi}»ping  fish  and  timber 
to  the  West  Indies  and  the  United  States.  The 
returns  from  these  shipments  were  mostly  in  sterlfng 
exchange,  wliich  was  sent  to  London  and  drawn 
against  to  pay  for  dry  goods,  h.ardware  and  other 
colonial  necessities.  The  banks  also  obtained  large 
amounts  of  sterling  bills  fi'om  the  imperial  authori- 
ties at  Halifax  in  exchange  for  specie  to  i»ay  the 
troops  and  buy  supi)lies  for  the  gari'isons. 

The  growth  of  business  between  18:{"i  and  1841 
was  especially  remarkable  in  New  Brunswick.  It  is 
best  illustrated  by  the  returns  made  to  tlie  pi-ovincial 
governments  in  these  years.  For  ]turi>oses  of  com- 
i/arison,  returns  foi-  IS.") I.  ISCiJ  and  ISCiT  are  given 
in  the  same  table.  Sucli  returns  of  Nova  Scotia 
banks  as  I  have  been  able  to  s(>cure  are  also  given. 
They  are  few.  as  then^  appears  to  have  been  no  regu- 
lar publication  of  statements  from  the  (duirtered 
banks  of  Nova  Scotia,  either  in  the  legislative  docu- 
ments or  the  H(>!/(il   (inzcftr  of  that  pi'ovince. 


■■:■  n 


I" 


ill 
■•1' 


314  The  (kinadian  HankiiKj  Si/s/em,  1817-1890 


II 


Hi 

if 

I. 

li'i 
I  T- 


H 
O 


o 


V. 


7! 

ST. 


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u  o 


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a 


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td 

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CO 


cr.  c  "M I  -  —  :  : 

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ir:       I ..  -f  -r  •  ■ 


-.  ^t  ^\  '  '  ~^  -^ 
'''  —  y.~  c'  tT  .:' 
T I  ri  v.     I  - 


z  i[^  ft  r.  A     '.    '. 

■7.  -^z-.  c"i  i'    •    • 
-r  —  jx  lO  t^ 


li^V 


y. 
y. 


y.  '  • 


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z.  r.  ~  \~  ~- 


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V( 


CO  c:  C  r p  .  C  .  ' 

c-  r".  "M  r.  "M  .  ?t  . 

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A     :  r.  •71  OC 

^T I  -    •  x'  r'  x" 

— '  tC         :7  »C  IT 


r.  7^1  ic  'X  c? 
x_  5_  rT  -^  -T 
1-71"   -r    77'  .r" 


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1  -  c^    I  -    I  -  r. 

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!r  >.  -  tc  2  5  !-;    . ._ 

^    "^    S    '^     ^  IT    ^^ 


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71     t'     := 


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—     "c   - 

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c  c-  c  s;  as  c  fc'^    -^  c 


il 


lielalion  in  lUnik  Lcyislalionof  the  Dominion        '->ir> 


W 


i 


IV.  Finally.  tli(>  ])r()viiu'es  of  (^urbcM-  juid  Ontario 
were  to  enjoy  in  the  councils  of  the  Dominion  a 
certain  ])i'ei)on(lei'an('e.  as  well  on  account  of  their 
greatei-  wealth,  i)opulation  and  trade,  as  of  their 
lai'ji^er  representation  in  I'arlianKMit.  Where  the 
])recedents  and  laws  of  the  Mai'itime  Provinces 
ditfei-ed  from  those  of  the  province  of  Canada,  the 
legislation  of  the  l^ominion  v.-as  <>x>nerally  drawn  up 
accordin<^  to  the  Canadian  lines.  Especially  is  the 
effect  of  this  tendency  to  be  remai'kcd  in  tlu'  legis- 
lation with  rcg'ard  to  the  hanks.  Those  in  Caiuida, 
both  in  the  agg're<>ate.  and  for  the  most  i)art  individ- 
ually, were  superioi-  in  power,  resources  and  intlu- 
ence.  to  those  of  the  ]\[aritime  J'rovinces  ;  their 
efforts  to  ])reserve  the  continuity  of  their  own  devel- 
opment were  destined  to  prevail  over  similar  attemjits 
by  weaker  rivals.  It  is  the  more  n(^cessary.  accord - 
inj^ly.  to  know  well  t!ie  charters  j^^i-anted  in  Canada, 
and  the  forces  there  at  work.  This  study  was  the 
purpose  of  the  chapters  ii  to  v. 

For  the  four  I'easons  offered  in  the  preceding 
paragraphs,  a  further  study  of  the  banking  history 
of  the  ^Maritime  Provinces  need  not  be  undertaken. 
It  cannot  matei-ially  serve  our  i)resent  purjjose  of 
tracing  the  develo])ment  of  the  banking  system  which 
l)revails  in  Canada  to-da}'. 

NOTE. —  riUC  TIIEASIUV   NOTKS  Ol'  TIIK  I'KOVINCK  ii|'  N(1VA  SC'nllA 

Tlie  Treasury  note  issues  lit'i;au  iu  18lL'.  Tlip  first  amounted  to 
.Ul'J, 0(111  of  notes  bearing  interest  at  li  jier  cent.,  receivable  at  the 
Treasury  for  public  dues  and  nut  re-issuable.  Warrants  nn  the 
Treasury  were  made  payable  in  ^oid,  silver  or  Treasury  notes,  at  the 
option  of  tiie  payee.  (■">_  (ieo.  Ill,  cap.  7,  X.  S.)  The  subseipient 
le>rislation  is  an  example,  in  many  ways,  of  the  course  usually  run 
by  fiduciary  issues  of  {rovernnient.s.  The  ultimate  redemption, 
liowever.  was  somewhat  more  creditable  than  the  avera^re. 


v'« 


ill 


MJll  . 
I     • 

■'   9  ■■■'  ■ 

i 


) 


'rf! 


li 


1; 


1 

1!> 

i 

1   ;»^ 

1 

'i; 

iai 

-iji"  .''.T 

1 '1 

|y|^ 

1  :'! 

Hi 

3; 

ijii 

1 

;C, 

216  77i('  CaiKulian  /lioikiii;/  Si/sfcm,  1817-1890 

This  issue  of  ]81i'  was  witlidrawn  in  iSi;!  and  ii  new  i.ssue  autho- 
rized of  .CL'O.OfKi  in  non-interest  hearing.'  anil  ieissual)le  notes. 
Tliere  were  provisions  for  funding  tiie  notes  in  amounts  of  not  less 
than  £10(1,  by  interest-bearing  certificates,  in  case  the  Treasury  had 
no  cold.  The  notes  issued  under  this  statute  were  not  payable  on 
demand  in  specie  until  three  years  after  the  date  of  publication  of 
the  act.  (■).';  Geo.  Ill,  cap.  1")  )  Thus  in  the  second  year  of  its 
e.xiatence  this  fiovetiiinent  currency  became  irredeemable  on 
demand. 

In  IS17  a  new  issue  of  C'ld.ddd  was  authorized,  the  notes  bearinj; 
date  the  :i<'th  April,  and  belnj:  payable  on  deman<l  in  ^old  or  silver 
after  the  liist  December,  ISIT.  They  were  non-interest  bearing;. 
fun<lal)le  quarterly  and  re-i8suai)le  in  like  manner  as  the  precediii}; 
i.ssue.  (•")7  Geo.  Ill,  cap.  17.)  CUl.OOO  more  notes  of  denomi- 
nations of  £1,  Cl.'  and  £5  were  authorized  in  ISlii.  Loan  olRces, 
under  the  direction  of  commissioners,  were  established  at  Annapo- 
lis, Halifax  and  Kinj^s,  for  loaninj;  in  amounts  of  not  more  than 
£l'(K)  to  each  borrower,  the  notes  upon  real  estate  security  at  the 
interest  of  (i  pvr  cent.  Itepayment  of  one-third  of  the  principal 
was  to  be  exacted  at  the  end  of  throe,  six  and  nine  years  after  the 
Slst  December,  IS1!».  Loans  were  made  tinly  upon  unencuml)ere<l 
estates  of  treble  the  value  of  the  sums  secured.  Provision  for 
fundiuf^  the  notes  at  (i  per  cent.,  aftc  ISl'l',  and  cancelling:  all  thus 
retired,  was  included  in  the  statute.  Notes  unpaid  or  unfunded 
after  the  ^llst  December,  ISL'b,  were  made  payable  on  demand  in 
gold  and  silver,  and  thereafter  not  rc-i.ssuable. 

The  next  year  (ISi'O)  an  issue  of  fJO.OOO  more  was  authorized,  the 
notes  being  payable  the  lUst  December,  18:i2.  At  the  same  time 
tlie  total  circulation  was  limited  to  f7tl,(i(i().  (do  Geo.  Ill,  cap.  IS.) 
During  the  session  of  ISi'd-iM  the  circulation  was  further  limited  to 
€tlii,L'L'7  in  notes  for  tive  shillings,  ten  shillings.  I'l,  £2  and  £■">.  The 
notes  bore  no  interest,  were  to  be  dated  on  the  lirst  Monday  in 
January  or  ,Tuly,  according  to  the  half  year  in  which  they  were 
issued,  were  re-issuable.  and  payable  on  demand  in  specie  after  three 
years  from  the  day  of  date.  The  Treasury  being  then  unable  to 
pay  in  gold  and  silver,  was  empowered,  as  usual,  to  fun<l  the  notes 
with  certificates  at  ()  per  cent.  (1  and  l*  Geo.  IV,  cap.  4.)  In  ISi'd 
new  commissioners  were  appointed  to  issue  some  £4d,00d  of  Trea- 
sury notes  and  to  cancel  the  old  ones  in  circulation.  These  were  also 
re-issuable,  receivable  for  public  dues  and  fundabU'  after  three 
years,  liut  the  notes  were  now  made  payable  in  payment  of  war- 
rants ujion  the  Treasury,  irhenever  the  Treaiiui'i/  should  not  hare  the 
needful  gold  iind  xilrer.  The  payee  being  dej)rived  of  his  election 
))etween  sjjecie  and  Treasury  tiotes,  the  notes,  therefore,  became  a 


The  Treufiuri/  A'o/^'v  of'  Aorc  Srnlia 


ai7 


m 
f  (if 


t,'i 


legal  tender  in  discharge  of  government  debts.  (7  Geo.  IV,  cap.  \\.) 
Two  yeans  I'Uer  the  Provincial  Treasurer  was  directed  toapjtlv  what 
gold  and  .silver  should  come  into  his  hands  exclusively  to  the  pay- 
ment of  the  funded  debt.  In  ISL'lt  the  limit  of  the  circulation  lixed 
at  ,£4<i,(i(H(  in  the  preceding  year  was  raised  to  t:"i5,<i0(l,  and  in  1S:>l' 
to  £8(t,oiHi  (9  Ge  .  IV,  cap.  ?>;  Ki  Geo.  IV,  cap.  43;  •_'  Wm.  IV, 
cap.  (14.) 

The  next  year  the  defective  state  of  the  currency  and  tiie  desire 
to  provide  for  its  specie  redemption  led  the  legislature  to  enact  that 
the  payment  of  customs  duties  should  be  in  gold  and  silver  alone. 
The  Treasurer  was  instructed,  whenever  he  had  the  sjiecie,  to  pay 
Treasury  notes  in  sums  of  £1i>,  ujion  presentation;  when  notes  in 
sums  of  .tlodorover  were  presented  for  jiayment,  and  suflicient 
gold  or  silver  was  lacking,  the  holder  was  entitled  to  receive  inter- 
est-bearing certilicates  for  like  amounts.  When  the  Treasurer 
lacked  both  specie  anil  notes,  the  commissioners  provided  for  the 
payment  of  government  dues,  certilicates  of  funded  debt  which 
bore  interest  at  4  jior  (;ent.,  and  were  limited  to  an  outstanding 
total  of  JE2IMMIII.  The  commissioners  might  issue  new  notes  for 
amounts  equal  to  those  retired  by  certificates,  and  these  new  notes 
were  payable  in  discliarge  of  warrants  upon  the  Treasury.  (:>  Wm. 
IV,  cap."  ;!S.) 

According  to  an  act  of  1S;')4  the  notes  were  received  for  customs 
duties  at  the  rate  of  KJs.  cy.  per  £  stg.  (4  Wm.  IV,  cap.  1.)  In 
1835  the  interest  on  certificates  by  which  the  notes  were  funded  was 
reduced  by  statute  from  d  to  5  per  cent.,  while  the  interest  on 
£n,o(iO  of  the  certiticaies  of  funded  debt,  issued  under  the  act  of 
ISH:'),  was  raised  to  •">  per  cent.  Tlie  legislature  further  provided  for 
funding  the  notes,  prohibited  the  re-issue  of  notes  funded,  and 
limited  the  amount  of  certificates  issued  under  the  act  and  out- 
standing to  £1S,.">0(i,  while  pledging  the  payment  of  the  whole  sum 
by  the  1st  January,  b'>;)S,  or  assoon  as  possible  thereafter.  (.■>  Wm.  IV, 
cap.  22.)  The  province  was  still  liable  in  184(1  for  some  £l!0,0(io  upon 
certificates,  a  large  amount  of  Treasury  notes  was  outstanding,  and 
the  government  owed  £27,("i(i  to  the  Savings  ISank  at  Halifax.  The 
former  laws  relating  to  Treasury  notes  were  repealed,  and  the  sub- 
stitution of  a  new  issue  for  the  notes  in  circulation  autlioriz*  d.  Hut 
according  to  the  new  statute  the  notes  were  still  payable  to  holders 
of  warrants  upon  the  Treasury,  if  there  should  be  no  gold  or  silver 
available.  They  might  be  re-issued.  The  amount  in  circulation 
was  limited  to  its  then  figure.  Notes  were  receival)le  at  the  Treasury 
and  by  collectors  of  imposts  and  light  duties  at  their  par  value. 
Customs  duties  were  payable  in  gold,  silver  and  Treasury  notes 
only.      (9   Vic,   cap.    14.)      This,   apparently,   was   discrimination 


m 


'!lll 


218  The  t'amuUun  IhiuJciu;/  Si/.sfc»K  1817-1800 


'if. 


'■  I 


against  liank  notes.  The  lianks,  indeed,  already  sulTered  somewhat 
l»y  the  partiality  of  the  lejiislatiire  for  Treasury  notes,  for  they  were 
prohil'ited  hy  an  act  of  I8:>4  (4  Wni.  IV,  cap.  lM),  from  issuin<;  notes 
for  less  than  f")  currency. 

Under  the  law  of  iSl(l,   notes   were  issued  down  to  the  time  of 
C'onfederiition.     .Assistance  j.'ranted  to  railways  in  ls.")4  was  the  ex- 
cuse for  an  aiMition  of   c.'iu.iiiio  in  notes  of  2(i  shiliinj:s  to  the  CUK), 
(iiiO  currency,  or  therealiouts,  already  in  circulation.   (17  Vic,  cap.:!.) 
Tiiese,  like  the  issue  of  IS4(i,  were  nominally  payahle  on  demand  in 


gold  or  silver.     The  form  of  the  note 


was  as  follows 


One 
Pound. 


*1 


I'rovince  of  Nova  Scotia — The  hearer  hereof  h 
ceive  at  the  Treasury,  Twenty  Shilliufrs. 


en 


One 

Pound, 
titled  to  re- 


Dated  at  Halifax  the dav  of IS. 


I 


('"III 


iinnsioiK  rH. 


reiiHuirr. 


I5uf  practical  1>'  the  Treasury  Notes  of  Nova  .Scotia  were  iniMleemalilei 
lartre  sums  could  not  he  converted  into  specie  iit  tlu>  oi)tion  of  the 
holder;  nor  could  they,  for  exiimple,  he  safely  used  by  the  hanks 
as  a  jiart  of  their  reserves.'  The  only  transactions  in  which,  so 
far  as  I  can  discovei',  thc>'  weri'  lej^al  tender,  were  in  payment  of 
warrants  upon  the  Treasuiy,  when  tlii-re  was  insullicient  jiold  or  sil- 
ver to  meet  the  debts  of  the  ^o\ernment.  A  (|ualified  redemiition 
was  kejit  up  by  the  jtossibility  of  usinjx  the  notes  at  their  i)ar  valua 
in  payment  f.)  the  !j;overnment;  but  this  did  not  sullice  at  all  times 
to  ])revent  a  depreciation.  The  indebtedness  of  the  province  upon 
this  paper  was  assumed  by  the  Dominion  of  Canada  in  ls(57.  The 
amount  was  then  i})()U"),s,'>ii.  Ii.'.  IJedemption  was  so  rapid  during  tlie 
next  five  years  that  by  1S7L'  only  S(;|,()S")  were  still  outstauiiinj:,  and 
by  lSi)0,  <;:;'.),74:;.     (l'ui)lic  .Vccounts,  Canada,  18!Mi,  p.  lis.) 

'  .rourtial  ol'  file  House  of  Commons,  Cantida,  ISiilt,  .Vppciulix  J,  p.  Mi,  E\i(U'nce 
of  Messrs.  Lewiii  and  Kowley. 


("UAl^TKR  VII 


BAXK1X(;    KKFOHMS.    isc?    IhTI 

^'JJn.       PKKMMIXAin-   MKASriMCS 

I^v    til,"    British    Xcrth    Amcn.-a    Act    ..f    Ks;7     tii." 

Parliament  of  Cannda  was  oivoM  exclusive  l,.uish,tiv<. 
authority  in  all  matfrs  coHiiiio-  within  the  suhj,.ets 
of  cnrrency  an<l  coinaoe.  I.aiilcino,  incorj.oratiun  of 
banks  and  the  issue  of  j.aper  nionev.  sa vinos  l,;uiks 
bills  of  exchang-e  and  promissory  lu.tes.  inten-st  ami 
legal  tender.' 

-An  Act  respecting-   Banks'"  (:?]   \i,...  .-ap.  o)  ,vas 
the  earliest  statute  enacted  under  tlu>se  powers  which 
concerns    the    present    study.      This    was    nK^vlv    a 
temporary  measure,  the  exprn-y  of   which    was   fixed 
for  the  end  of  the  first  session  of  Parliament,  after 
the  1st  January,  1S7().     Yet  some  interest  attaches 
to  It  as  an  early  indication  of  the  force  with  which 
Canadian  precedents  influenced  the  legislators  of  the 
Dominion.     It  first  extended  tlu>  powers  of    hanks 
previously  incorporated  by  any  of  the  provinces  to 
the  territory  of  the  whole  Dominion.     Banks  in  Nova 
Scotia  and  New  Brunswick  were  subjected  to  th,>  tax 
ot    one    per   cent,    upon   the  excess  of  their  avera-v 
circulation,    above    the    average    weeklv  amount  of 
coin  and  bullion  kept   in  their  vaults,  and   reported 
with   other  items,    semi-annually    to    the    Dominion 

'Imperial  statutes,  n..  and  :5I  Vic,  cap. :::;.  ^Dl,  Haus.s  14  to  Mi,  Is 
to  20  inclusive.  ' 


m  :  ■'  ! 


^M.':|: 


.     'V. 


2-40  77//?  ('(UKidinn  /i(iiiki>i(/  Sj/.sfnn,  1817-1890 


•<>'» 


m  i 


^•ovcniiiiciit.  Tlic  rt'inaiiKU'i-  of  tlic  law  is  prat'ti- 
cally  a  re-cnactiiKMit  for  the  Dojuinion  of  Canada  of 
the  general  legislation  npon  hanks  previously  in  force 
in  the  jn-ovince  of  the  same  name.  Hanks  were 
empowered  to  hohl  and  disposer  of  mortgages  taken 
as  additional  security  for  (l(.d)ts  transacted  in  the 
usual  course  of  their  husiness.  to  i)ur(duise  and  hold 
lands  thus  mortgagecl  to  them,  to  hid  in  lands  as 
auctioned  at  their  suit,  accjuire  al)solute  title  therein, 
to  act  on  ])owcr  of  sah'.  etc.,  etc. 

Tlu'  Dominion  Parliament  also  adopted  the  law  as 
to  loans  on  wareliouse  receipts,  descrihed  in  the  last 
cha])tei'  hut  one.  The  period  for  which  the  hanks 
migiit  hold  the  commodities  descrihed  hy  the  instru- 
ment was  limited  to  six  months,  except  in  the  case 
of  tind)ei-.  when  a  twelve  months'  holding  was 
allowed.  Section  U  of  the  act  i)rovided  for  the  case 
where  tiie  warehouseman  and  the  horrower  were  one 
and  the  same  person;  section  10  declared  that  ad-- 
vances  grajtted  hy  hanks  upon  the  security  of  ware- 
liouse recei]>ts,  hills  of  lading,  specifications  of 
timher.  and  the  like  should  have  ])riority  over  claims 
of  the  unpaid  vendors.  Both  these  features  had 
heen  added  to  the  provim-t^  of  Canada  statute  in 
1801.  tlie  first  hecause  the  courts  had  decided  that 
the  warehouseman,  etc.,  must  he  the  liailee  and  not 
the  t)wner  of  the  goods;  the  second,  in  order  to  make 
tlu'  law  ceitain,  as  the  unpaid  vendor  j)reviously  had 
the  prioi'  lien  in  som(>  cases.-  All  hanks  were  ex- 
empted from  penalties  for  usury,  hut   were   not   per- 

'Tlie  whole  (levolopment  is  fully  treated  hy  Z.  A.  Lash,  "Ware- 
iionse  Roi'eipts,  Hills  of  Lading  and  Securities,  under  See.  74  of  the 
Hank  .\i't."  Joitnudof  llii-  CaninUnn  Bun/.ern'  Assoridtion,  vol.  ii,  p. 
")4.  T!ie  work  lir.st  cunie  to  my  notice  after  this  and  the  subsequent 
references  were  written. 


/'reliminari/  Mensiucs 


fill 


mitted  to  recover  at  law  any  liij^lier  rate  tliaii  7  pei- 
cent,  (rraduated  charges  for  tlie  expenses  of  aj^ciicy 
and  collection,  not  to  exceed  one-half  ]»er  cent,  for 
ninety-day  paper,  were  i)erniitted  to  banks  disconnt- 
ing  notes  payable  at  some  otlic(>  of  their  own.  other 
than  the  place  of  discount.  The  usual  charge  of 
one -half  i)er  cent,  in  addition  to  the  regular  rate  of 
discount,  was  permitted  when  the  nott^  sh(»uld  he 
payable  at  any  other  place  and  not  at  a  bi-anch  of  the 
same  bank. 

A  second  rt'-enactment  of  Canadian  legislation 
occurred  in  18(')S:  '•  An  xVct  to  enable  P.anks 
in  any  part  of  Canada  to  issue  notes  of  the 
Dominion  instead  of  issuing?  notes  of  their  own." 
(31  Vic,  cap.  4(5.)  It  was  the  Provincial  Note 
Act  of  1S()0,  phrased  in  the  same  genei-al  tiM'ins. 
extending  the  same  general  offers.  ]*)Ut  aside  from 
its  fiscal  object,  it  was  manifestly  intended  merely 
to  continue  the  arrangements  with  the  single  bank 
which  already  liad  charge  of  the  government  issue 
under  such  an  agreement  that,  even  had  they  wished, 
it  would  have  bt^en  impossible  for  other  banks  to 
take  advantage  of  the  government's  ostensilde  offer.' 
The  eight  millions  of  province  of  Canada  notes  pre- 
pared in  18(>(),  and  the  five  millions  thereof  in  cir- 
culation in  JS(')S.  were  declared  to  be  Dominion  notes, 
for  which  the  Dominion  alone  shoidd  be  responsible. 
It  was  also  i)rovi(led  that  the  (iovernor  might,  in  his 
discretion,  establish  branclu's  of  the  Receiver  (Jen- 
eral's  department  in  Montreal,  Toronto,  Halifax  and 


'.Touriial  of  the  House  of  C'onunoiis,  ('aiiiula,  1^70,  Appeiuiix  i',  p. 
.").  A  letter  of  Sir  Francis  llincks,  Minister  of  Finance,  to  U.  15. 
Anjins,  Ksq.,  General  AIanaj:or  of  the  i;ani<  of  ^lontreal,  Htii  Fcli- 


ruary,  is?". 


P- 


Tlw  Ca  11(1(1  in }i  /i(ni/i-iii(/  Si/s/cni,  1  si T- 1800 


St.  .loliii  l'(»r  tlic  issue  and  rcdcinptioii  of  Doiniiiiou 
notes,  or  lui^Iit  make  anaii^cnK'iits  tluTt'foi'  with 
any  cliartrrt'd  hank  oi-  banks,  and  allow  for  sucli  sci'- 
vi('(^s  a  coniniission  of  not  nioro  than  onc-ciuartcr  of 
(•nc  per  cent,  for  every  three  months  upon  the  avei'a^e 
amount  of  n(»tes  in  eireuhition  durinjj;'  that  jiei'iod. 
Owin^"  to  the  difTerenee  of  currencies,  notes  made 
payable  iic  Halifax  wei-e  legal  tender  in  Nova  Scotia 
only,  and  at  tiie  rate  of  s.')  \h'V  pound  sterlinj^'. 

In  KS()i)  their  charters  beiujj;  about  to  expire,  tlie 
Parliament  continued  till  the  end  of  the  first  session 
of  Parliament,  aftei'  the  1st  January.  ISTO,  the  cor- 
porate existence  of  the  C^)uebec,  liank,  City  l^ank, 
r.an(|Me  du  l'eui»le.  J»ank  of  Toronto.  Ontario  Bank, 
Bank  of  Bi-antford.  Canadian  Hank  of  Commerce, 
lloyal  Canadian  Bank.  La  ]^)an(iue  Nationale,  the 
(uti-e  I'ank  and  Niauara  District  Hank. 


i',i», 


m 


\m 


i ' 


i'M. —  IHK    (.UKSTION    OF    HANKINc;    ItKKOhM 

By  the  measuri's  of  IS()7-(')!).  time  was  gained  to 
consider  the  great  jtroblem  of  assimilating  tlu;  cur- 
rency and  banking  systems  of  the  several  provinces, 
and  of  creating  out  of  tin;  diversity  one  general, 
uniform  system  for  tlu'  whole  country.  Upon  the 
daj^  that  Conft'deration  became  a  fact,  thei-e  were 
eighteen  banks  carrying  on  business  in  Ontario  and 
Quebec,  under  charters  granted  by  the  jjrovince  of 
Canada,  five  working  under  Nova  Scotia  charters, 
and  foui-  under  acts  i)assed  by  New  Biunswick.' 
The  Bank  of  British  North  America,  acting  under 
its  royal  charter,  ojierated  in  all  the  provinces,  but 
it  also  was  to  be  suljject  to  such  Donunion  legislation 
'See  Note  1,  next  page. 


!i 


Tlir  (Jin's/ii)ii  (if  lUnik'i)!!!  Jic/onii  'i'i'd 

as  (lid  not  iiitcrffir  with  the  single  liul)ility  of  its 
simrcliuhlcrs,  nnd  {i  few  other  pcriiliar  ft-aturcs  of 
its  constitution.  Of  rhartci's  ^rantrd.  not  yet  for- 
feited for  non  user,  and  still  available  for  future 
operations,  there  were  in  Canada  three,  in  Nova 
Scotia  two.  in    New    Brunswick    (ivc.-     If  tin;    inter- 

'ONTAICIO    and   CiriCllKf  Citpitnl  l'iiiil-U|. 

Bank  of  Montreal $tl,(i(in,(iu(i 

linehec  Uunk l.47<>,L'.')(i 

Coniiiicrciiil  Hank  of  ("ana«la |,n(iii,()(iii 

Citv  llank |,-_'ii(i,(i(ii» 

(ioro  Hank .Sn!i,-.>S(i 

Hank  of  liiitish  N'ortli  Anu'rica 4,S(i(l,(i(i(; 

l'.ani|ue  <ln  Pciiplo i.ciki.ihki 

Nia>:ara  Di.stricf  Hank :.'7'.i,:')7<> 

Mol.sons'  I'.ank |,(i()(),(iiio 

iiank  of  Toiontc; sou.diiii 

Ontario  I'.ank 1,'."!mi,|(i(i 

Kastern  'rowrisliips  Hank ;;7'>, :'>>■•) 

lUuKiiii"  Xationaie l.(iiin,U(in 

Hanqni'  .la('(|iie«  Cartier !».")3,i;!.') 

MercliantK' iiank  of  Canada '.i41,lSL' 

Royal  ('anaiiian  JJank siiii.oi'ii 

Union  Bank  of  Lower  Canada 7ls,H(i.") 

.Mechanics'  J'.ank L'L'7,7l.'."> 

liaiik  of  Connnercu !is|,  IM 

!i;L'it.4fi7,77;; 

Nova  Scotia 

r.ank  of  Yannontli is|L's,t;(i(i 

Merchants'  Bank - (ij.nno 

Pcoiiie's  Bank ;;".i'.i,7S'.t 

Union  Bank l(i(),li()(» 

Bank  of  Nova  Scotia ."xlO.uoii 

^l,."i.".L',;iS!» 
Nkw   Bkinswk  k: 

Bank  of  New  Urunswiek $(lu(),(iriO 

Couunerciai  Bank  of  New  lirnnswick (idu.onn 

St.  Stephen's  Bank l'oii,(i()u 

People's  Bank Sii.noo 

?*l,4S(),()(i() 
-The.se  were,  in  Canada,  the  chaiters  of  the   Iiank  of   Northuin- 
berhuul,  the  Bank  of   London  and  the  Bank  of  Sienioe;  in  Nosa 


1 


■1^ 


;) 


'i 


I' I 


T 


1 1( 


/*  ^  t 


The  CdHdiliitn  JJaukimj  Sijsliui,  1H17-18D0 


«'st('(l  banks  wen;  to  coiitimn'  their  husiix'ss.  tlie  re- 
newal of  si'vi'Mtccn  of  tlicso  charters  \v(»ul(l  bt'come 
nt'(M'SHary  before  the  1st  .Inly,  l^!7l. 

Hut  the  i)r(»bU'ni  eonfrontini;'  I'arlianieiit.  and  inter- 
esting- iK'oph',  was  more  than  the  renewal  of  eeitain 
bank  eluirters.  In  tiie  ease  of  new  banks,  it  was 
more  than  the  jtassing'of  certain  private  acts,  fiamed 
on  tile  lines  which  hitherto  had  been  followed  in  the 
several  i)rovinces.  It  was  more.  indee<l,  than  the 
amendment  of  charters  in  such  manner  and  details 
as  experience'  might  have  suggested.  The  creation 
of  the  Confederation  and  the  establishment  of  a 
united  Parliament  marked  the  close  of  one  period  of 
Canadian  history.  Acts  and  decisions  immediately 
subse(iuent,  and  the  earlier  legislation  jtassed  by 
authority  of  the  British  North  America  Act,  hecume, 
to  a  great  extent,  i)recedents  for  guidance  of  the 
future.  No  stronger  example  could  be  adduced  than 
the  statutes  with  respect  to  banks.  The  question, 
therefore,  as  it  ai)peared  to  the  first  Parliament  of 
the  Dominion,  was  sei-ious.  difticult,  momentous. 
Upon  their  decision  depended  not  only  the  temporary 
continuance  of  the  banks,  and  the  security  of  the 
public's  claims,  but  also  the  j»ernuinent  efticiency  of 
the  system,  the  later  policy  of  the  government  and 
the  future  development  of  bank  legislation. 

The  discussion  by  people  and  i)ress  had  been  stimu- 
lated by  the  failure  of  the  great  Commercial  Bank, 
and  the  financial  crl-ds  that  f(dlowed  in  October,  18(57. 
We  are  already  familiar  with  the  result  of  the  meet- 

Sfcitiii,  the  Coinnicrt'ial  Bank  of  Windsor  and  tho  Kxohiinge  Hank 
t)f  Yarnionth;  in  New  lininswick,  tiie  Albert  l>ank,  tlio  Woodstock 
r«ank,  tiie  Merciiants"  Hank  oi  New  Jirunswick,  tlie  Nortliern  Hank 
and  the  Eastern  J'ank  of  New  Hriinswick.  Vide  mtprn,  chapters  v 
and  vi. 


The  (Jiifstinn  of  ltnnk-in;i  Hi'/onii 


iii^  of  the  i't'|n-cs('iitjitiv('s  troiii  the  vjiriidis  hanks 
lu'ld  ii]i()ii  tlic'JIst  of  that  iMoiith.  with  the  hope  of 
an-aii^iiij;'  f<»''  some  plan  to  assist  the  Coiumcrcial 
IJaiilv  and  prevent  its  faihiro.  The  ollicial  aceoiint  of 
this  mtjetin;;'  was  puldished  upon  the  'JSth.'  I»nt  it 
did  not  disarm  popuhir  and  newspaper  criticism  of 
the  ( Jovei-nnicnt's  fiscal  policy.  'I'Im'  Hon.  A.  'I'.  (Jalt, 
Ministei'  of  Kinance  foi-  tiie  l)ominion.  hecanie  con- 
vinced that  pnhlic  opinion  in  (Mitai'io  to  some  extent 
ludd  him  resjionsihle  foi-  the  loss  which  had  heen 
suffered  hy  investors  in  the  (-onnnercial  Mank:  he 
felt  tlmt  his  nsefnlness  was  marred,  and  that  he  could 
not  expect  the  same  snpjtort  from  representatives  of 
Ontario  that  he  had  heen  previously  ac(;orde<l.-  On 
the  7th  Novemhei".  iSCiT.  he  resi^-ned  his  seat  in  tiie 
Privy  Council. 

On  the  l.')th  Xovemher  ajipeared  explanations  wliich 
the  Board  of  the  Bank  of  Montreal  had  emhodied  in 
I'esolutions  adopted  the  4th.'  The  directoi's.  appa- 
rently, had  felt  constrained  to  publish  them  with  some 
iiope  of  nudlifying  the  hostility  to  their  hank,  which 
the  events  of  the  autumn  had  only  served  to  increase 
amonj^  the  people  of  Ontario.  Tiie  original  cause  of 
the  unpopularity,  no  doubt,  was  the  resti-ictive  policy 
followed  in  Canada  West  after  lS()2-8,  at  the  instance 

'Toronto  Globe,  L'Stli  OctotK-r,  1S(17. 

-Ottawa  Times,  Sth  Novt'inlier,  isiiT. 

'Mo«t  of  these  explanations,  to  be  sure,  wert;  denifd  })y  the 
|)re.siilenl  of  the  City  15anl<,  Mr.  William  Workman,  in  a  letter  \m\i- 
llshed  in  the  Toronto  Ul"b<-  of  the  Nth  Novemlier,  just  as  the  inin- 
if?terial  explanations  were  criticiseil  and  riddled  on  their  appear- 
ance. The  sonrees  for  an  aeconnt  of  the  coninienMal  failure  and  the 
action  of  the  banks  and  the  },'(jvernment  in  rcjiard  t(j  it,  are  more 
contradictory  than  the  evidence  in  a  case  at  admiralty  law.  Their 
further  consideration  would  l)e  interesting,  doubtless,  but  not  j'ar- 
ticularlv  advantatxeous. 
"  Jf) 


li 


<  .'J 


•■ 


■ 


I., 


'I 


^: 


«Y     (J 


32(5  The  Caadilitin  Jittiil-iiii/  Si/s/o)/,  ISIT-ISOU 

of  the  extraordinarily  ahlo  man  then  at  the  lioad  of 
the  bank.  Mr.  E.  H.  Kin?;.  Tlie  western  Easiness 
was  reg-arded  ;is  tliorongldy  unsound,  heinj;'  based  on 
aeconiniodation  pai)er.  ^Iv.  Kini>'  had  no  reverenee 
for  ••names"*  uitoii  seeurities  otfei-ed  for  discount;  he 
resolved  to  bring'  the  business  (h)\vn  to  i\  solid  basis. 
And  so  he  did.  although  jit  the  eost  of  more  than  a 
million  dollars,  written  off  between  \S(V,i  and  lS(i(>. 
by  the  Hank  of  ^lontreal  on  account  of  bad  and  doubt- 
ful d(d)ts  in  L'pper  Canada.  Canada  West  also  suf- 
fered by  the  process,  and  much  of  its  loanable  capi- 
tal, accumulated  as  deitosits  in  the  Bank  of  ]\rontrral, 
was  drained  away  from  the  pi'oducers  of  the  pr')vince, 
either  to  supply  the  importing  merct'.aiits  of  ^Montreal, 
or  to  be  sent  to  New  ^'oi'k.  there  to  serve  the  bank's 
exchange  and  gold  speculations  in  Wall  Street.' 

In  s])ite  of  these  facts,  the  intluence  and  power  of 
the  bank  wei'e  relatively  enormous.  Two  of  its  great 
competitors,  the  Comm(>rcial  JJank  and  the  Hank  of 
Upper  Caiuida.  had  fallen  victims  to  the  stri'ss  of 
events  and  their  own  mismanagement.  The  I'ankof 
]\roiitreal  had  nearly  a  fourth  of  the  total  paid-up 
banking  capital  in  Ontario  and  Quebec:  its  assets 
were  11)  '7'2  of  a  like  total,  over  a  fourth:  and  its  lia- 
bilities by  circulation,  deposits,  etc.,  were  nearly  a 
third  of  tlie  ,s:3<),0()().()()()  owed  by  all  the  banks.  |5y 
a(hling  to  th(>se  the  facts  that  the  bank  was  the  gov- 
ernment's de[)ositary  and  fiscal  agent,  and  thai  it  en- 
joyed peculiar  advantages  as  the  sole  issuer  of  pro- 
vincial notes,  one  has  amnle  exi)lanation  of  the   '-e- 


markable  prestige  enjoyed  by  the  ]?ank  of  Monti-eal 
and  its  leading  ofHcei's. 


'  T/ic  Shareholder,  Montreiil,  otli  Septeinlier,  ISIIO,  Reprint  of  tlu; 
article  on  the  I'.ank  of  Montreal,  Toronto  Globe,  I'jth  November, 
1S('>7. 


The  Question  of  Hnnkinq  liC/hnn 


>27 


r   1 


Now.  at  the  same  moetin<;'  of  the  4tli  Xovon)her. 
tlio  board  liad  ai)pi-ov('(l  a  iiuMiioi-aiKluiu  of  a  proposed 
system  of  haiikiiijj^  submitted  by  tlie  (ieuei-al  Mana- 
j^er.  Vj.  H.  Kill};".  "Tbe  (Jeneral  ^rana};"er,"  it  I'an. 
"believes  tliat  tlie  interests  of  tbe  eounti'y  will  be 
best  served  by  the  diifiisiou  of  baiikiiiii'  interests  in 
ditl'erent  localities,  leaving;-  to  the  j^reater  banks,  in 
la rt^o  measure,  the  care  of  the  mercantile  and  foi"ei<>;n 
trade  of  the  country,  and  to  the  lessei"  in  tluMr  own 
districts  the  car<'  and  su])])ort  of  local  enterprise.  He 
sees  no  I'cason  why  there  should  not  be  pei'fect  free- 
(h>m  and  etjuality  in  banking;-,  and  why  the  j^reater 
and  smaller  banks  could  not  exist  in  harmony,  each 
within  its  own  sphere  contril)Utin}>'  to  the  j^cneral 
]tros})erity.""'  The  sufj^fj^estion  of  ■•  free  bankiu};'." 
}>iveu  in  these  words,  becomes  nnmistakeable  as  the 
scheme  is  unfolded.  It  was  to  extend  the  };()vern- 
ment's  issues:  to  deprive  the  l)anks  of  theii'  powers 
of  circulation:  to  allow  only  the  issue  of  notes  pre- 
j)are(l  by  <4()V(.'rnment .  and  tleliveicd  to  banks  only 
after  the  de])osit  of  Dominion  *>'overnment  bonds,  to 
be  held  as  special  security  foi'  the  circulation:  to  per- 
mit the  establishment  of  local  banks  with  small  capi- 
tal in  each  county;  and  to  provide  for  elasticity  of 
the  currency,  by  means  of  maximum  deposits  of  bonds 
as  note  security,  and  by  the  periodical  movement  of 
currency  from  east  to  west,  as  in   the   L'nited  States. 

The  author  of  this  scheme  was  not  the  oidy  Cana- 
dian to  be  won  over  to  the  Xational  IJankinj;"  System. 
To  brino-  I. (KM)  banks  and  s4"J(),00().()(i()  of  l)ankino- 
ca])ital  under  iiniform  lej^islation  and  to  achieve  the 
ref(U"ms  which  the  founders  of  the  national  system 
could  justly  claim,  luxd  l)een  no  mean  task.     So  fai'. 

'Toronto  Globe,  IMli  Novoml)er,  18(57. 


nit 


i.r 


i 


I 


It 


\4 


wl 


9<^   I  A 


f),.3 


:« 


!l 


i 
I    I 


228 


77/^  Camidiitn  /lankiiif/  Sysfo)!,  1817-1890 


moreover,  tlie  system  liad  worked  well.  There  was 
a  decided  attiaction  in  the  much  vaunted  security  of 
the  national  hank  note,  an  attraction  that  often 
overshadowed  the  ri^-idity  of  such  a  circulation,  and 
the  lack  of  any  daily  test  of  convertihility.  Then  the 
pleasant  notion  that  a  local  hank,  founded  on  local 
capital,  and  nianaj^ed  hy  local  magnates,  is  hest  ahle 
to  assist  the  h)cal  intei'ests.  had  often  appeared  in 
Canada  as  an  argument  for  inci-easing  the  numher  of 
hanks,  and  received  fre(iuent  acceptance,  particularly 
amon^"  the  moi'e  needy  horrowing  classes.  Further- 
more, the  ntitional  l)anking'  law  had  created  a  niai*- 
ket  for  nearly  s:?40,0()(),()(H)  of  United  States  honds. 
Free  hanking-  was  believed  to  have  increased,  in  New 
York,  the  demand  for  the  state's  securities,  and  thus 
to  have  raised  tlu;  price.  Canadian  leaders  were 
anxious  in  every  possible  way  to  strengthen  the  credit 
of  the  new  government,  and  they  were  inclined  to 
favor  any  practicable  plan  for  the  creation  of  new 
financial  rescnirces. 

The  Select  Committee  of  the  Senate  struck  in  the 
session  of  IS()7-<58.  roundly  condemned  in  their  report 
the  bank  of  issue  system,  started  under  yiv.  (rait, 
and  recommended  the  return  to  the  system  of  bank- 
ing that  obtained  ]uu'vious  to  1S0(5.  Whether  they 
were  influenced  by  the  scheme  of  Mr.  King,  or  con- 
verted by  the  American  exi)erience,  it  is  needless 
now  to  enciuire:  as  a  pi,s  nllcr,  however,  they  did 
approve  of  the  American  plan.  It  will  be  best  to 
(juote  literally  the  statement  of  their  position:  ••Your 
Committee  recommend  that  if  the  financial  requii'e- 
ments  of  the  Dominion  should  induce  the  Govern- 
ment to  tlesire  the  introduction  of  a  new  system, 
including  the  taking  possession   of  the  curi-eney  of 


m 


The  Question  of  liankiiu/  Rpf>n')n 


329 


the  country  (wliioli  your  Coniniitt(  o  would  stronj^ly 
deprecate),  the  issue  of  a  paper  currency  l)e  based 
ui)on  the  deposit  witii  tlie  ( Jovernnient  of  tlie  public 
securities  of  the  Dominion  under  a  system  analo- 
gous to  the  National  Kankinj)^  System  of  the  United 
States,  but  redeemable  on  demand,  tlie  (Government 
regulating-  the  issue  under  the  authority  of  Parlia- 
ment; the  banks  through  which  the  notes  are  issued 
being  responsible  for  their  instant  redemption."- 

On  the  14th  April.  18(58.  the  Hon.  John  Rose,  suc- 
cessor to  ^Ir.  (Jalt  as  ^Minister  of  Finance,  proposed 
to  the  House  of  Commons  the  appointment  of  a  select 
committee  ui><ui  Banking  and  Currency.  It  would  be 
the  <luty  of  the  committee,  he  said,  to  inquire  into 
the  jtosition  and  circumstances  of  all  the  banks  in  the 
Dominion.  ]\Ir.  Rose  himself  anticii»ated  that  the 
House  would  agree  upon  at  least  two  great  funda- 
mental princii)les.  viz..  that  the  ami)lest  security 
should  bi'  given,  not  only  for  the  cii-culating  medium 
in  connnon  use,  but  also  for  the  deposits  confided  for 
safe  keeping.  He  ])rocee(led  then  to  review  the 
charters  in  force  in  the  different  provinces,  and  the 
(piestions  growing  out  of  them.  In  neither  i)art  was 
his  si>eech  distinguished  for  accuracy  as  to  facts 
or  correctness  in  theory.  But  his  committee  was 
sti'uck.  and  the  ]\Iinister  api)ointed  chairnuin.  The 
conunittee  then  drew  ui>  ([uestions  covering  subjects 
as  follows:  the  past  services  of  the  existing  banking- 
system;  expedit'ucy  of  issuing  governnu'ut  i)aper; 
practicability  and  advantage  of  introducing  asystem 
of  banks  issuing  currency  based  on  deposits  of  gov- 
ernment securities  analogous  to  the  American  sys- 
tem; the  practice  and  business  of  the  Canadian  banks; 

'Journal  of  the  Soiiatt',  Ciuiada,  isdr-cg,  Aitpendix  I. 


'till 
'J  II 


'ii^ 


I    il  <:< 


230 


Thr  ( (Diadian  lianL-iinj  S;/sfeiii,  1817-1890 


the  defects  of  the  Ciiiuulian  system,  and  the  means 
of  improvement.  Amony^  others  t'leven  hi<;h  hank 
ottieials.  inchidini;-  one  pi'esich'nt  and  ten  easliiers. 
thi'ee  eminent  puhlic  nun.  three  hoards  of  trach' and 
five  capitalists  and  leading;"  hiisiness  men  re]»lied  to 
the  (piestions  sni»mitte<l  hy  tlie  committee.  The  tes- 
timony was  hy  no  means  unanimous,  hut  tiie  wei,i>lit 
of  it  was  no  wise  in  favor  of  the  system  of  s)»ecially 
secni'cd  hank  issni's.  foi-  tlie  introduction  of  wliicli 
events  proved  tlie  connnittee  to  liave  lieen  l»are]y 
more  than  a  (doak. 

We  need  no  more  than  mention  the  faults  they 
found  with  the  ])lan  of  {government  issues  su<4<;'ested 
by  the  (juestions:  the  temptation  to  (  xtravaj^ant  ex- 
l)enditure  arisin*;-  from  su(d>  suchleii  and  easy  sources 
of  financial  aid:  the  prineiide  that  the  governnu'iit 
shouhl  horrow  in  the  open  mai-ket  at  fixed  times  of 
maturity,  for   whicdi  ])rovision  co 


uld 


l»e   nuKle 


witli- 

out  disturhanci':  the  fact  that  every  existing-  y;ov- 
ernment  currency  was  then  at  a  discount;  the 
ahsence  of  any  sym]>atliy  between  the  denumd  for 
currency  and  a  hureauci-atic  source  of  su^jply,  gov- 
ernment issues  being  ordinarily  emitted  in  ])aynient 
for  ])ublic  works,  oi',  perhaps,  the  current  ex})enses 
of  tlie  state,  rather  than  in  provision  for  exchanges 
about  to  occur:  the  fact  that  government  issues  ai'e 
not  subjected  to  the  regular  redemption  made  neces- 
sary for  hank  notes  by  the  daily  icpayment  of 
loans,  the  accunudation  of  deposits,  and  the  compe- 
tition of  the  issuers;  that  the  convei'tibility  of  the 
government  issue  is  protected  by  no  regular  replen- 
ishment of  the  reserves  (»r  constant  liquefaction  of 
the  assets  of  tlu'  issuei*.  as  in  the  case  of  bank  notes; 
and  that,  finally,  to  abolish  the  bank  cii'culation 
woidd   lead  to  a  great   contraction  of  discounts. 


i'  ) 


The  Case  againxl  Circuhdion  Sfcnnd  Inj  Bonds       2'M 

i<:}S. — TllKCASE  ACIATNST  MANK  (1  H(  T  I.ATK  »N  SKCIKKI* 
r.V   I'LEIXiE  OE   HONDS 

In  tlu'ir  criticism  of  existing-  charters,  tlic  bankers 
were  even  more  exjtlicit  and  fnll  tlian  wlien  testify- 
in^'  to  tlie  Senate  Conunittee  of  the  ]trevioiis  session, 
hnt  this  was  constrnctive  ci'iticism.  to  folh)w  which 
would  have  been  to  better  Canadian  bankin<;'  law.' 
Af^ainst  the  implied  proposals  of  the  committei'.  on 
the  other  hand,  the\'  objected  that  the  system  of 
banking-  and  curieni*y  there  su<;gested  was  costly, 
ri<^id.  compai'atively  inefficient  and  calculated  to 
(liminisli  rather  than  inci-ease  the  loanal)le  funds 
ordinai'ily  at  the  disjiosal  of  the  connnerce  and  in  lus- 
tily of  the  country.  The  (|uestior  now  was  not  one 
of  bank  extension,  and  the  ci'eation  of  local  facilities, 
nor  did  it  turn  j)articnlarly  upon  the  functions  and 
])i*ei'o«^ati ves  of  {government.  So  it  was  necessary  to 
urge  the  more  sti'ictly  economic  objections  against 
'•  free  banking."  and  that  possibility  of  a  further 
increase  of  govei'nment  paper  whicli  the  (juestions 
also  implied. 

As  an  economic  (piestion  it  was  of  the  highest 
significance.      In    their    business    of    issuing    notes. 

'The  foUowhig  arc;  tho  chief  iininovenieuts  sup^'esteil  liy  tlie 
hankers,  the  list  l)einf;eoiiipileil,  I'or  tiie  most  \k\v\.,  frt)in  the;  reiilies 
of  Messrs.  Cartwriirht,  Ihij^iie,  Lewin  and  Stevenson;  the  replies  of 
any  one  witness,  of  eoiirse,  never  comprising  the  whole  list. 

((()  To  estiiblisli  a  minimum  t'apital  to  lie  re(|iiiie(l  from  newly 
oharteretl  banks,  and  to  limit  the  nnmherof  branches  in  proportion 
to  the  paid-up  capital  stock. 

{/))  To  prevent  the  beginning  of  business  until  a  certain  jiart  of 
the  capital  stock  is  paid  up,  held  in  sjiecie,  and  the  fact  certified  to 
by  a  government  otficer. 

(r)  To  make  the  double  liability  available  in  case  of  need  within 
a  reasonable  j>eriod,  e.  >/.,  by  assessment  of  shareholders  for  the 
deticiency  at  the  end  of  say  six   months  after  stisjiension,  and  by 


\  ^i'lii 


■ff 


,1>!-    b 


'.)•«') 


The  (^iimulian  Ihtnkiufi  Sj/s/cm,  1817-1890 


fe' 


^r 


i:    I 


receiving  and  cniitloyiiig  tlu'  si)are  funds  of  tlu* 
poojjle.  discounting  comnicrfial  paper  and  bills  of 
exchange,  and  making  misoellaneous  advances,  the 
hanks  were  in  close  relations  with  nearly  all  classes 
of  the  ])roducing.  trading  and  lending  communities 
which  then  made  up  (-anada.  The  loanable  funds 
of  the  banks  were  derived  from  their  capital,  dej)osits 
and  circulation.  To  force  the  banks  to  furnish  bond 
security"  for  the  notes  previously  issued  upon  their 
general  credit,  would  be  to  close  one  of  the  sources 
of  supply,  and  by  conse(pience  to  diminish  the  amount 
of  capital  employed  in  furthering  commercial  enter- 
prise. For  in  order  to  get  the  bonds,  value  of  some 
sort  must  be  given — and  the  portion  available  f(n- 
loans.  (Mther  of  capital  or  deixtsits.  would  inevitably 
be  lessened,  even  though  circulation  remained  at  the 
same  height.      Bank  profits,   probably,  after  i)aying 

provision  tliat  tlie  snl)sequent  pnxHH'ds  form  the  divitlont'.  of  tlu' 
siuirolioiik'rs,  rather  than  the  creditors. 

((/)  To  make  transfers  within  tliree  months  of  the  suspension, 
and  at  any  time  thereafter,  void. 

((?)  To  reijuire  sueh  statements  of  accounts  as  would  check  ille- 
<;itiinate  operations. 

(./')  To  prohihit  any  hut  uiodcrate  dividends  til!  a  reserve  fund 
shouhl  l)e  accuniuhiteil,  sucli  to  he  made  ^ood  if  impaired. 

(,7)  To  make  tlie  circulation  a  first  charge  upon  the  a.ssets  of  an 
insolvent  bank. 

(/()  To  proliihit  the  i.ssue  of  notes  for  less  than  four  dollars. 

(0  To  rc(|uire  a  certain  proportion  of  demand  liabilities  to  be  held 
in  specie,  say  L'n  per  cent. 

(./ )  To  limit  the  circulation  to  paid-up  capital  stock  and  <;overn- 
ment  securities,  and  proviiie  that  any  excess  should  he  covered  by 
specie  in  hand  over  and  above  the  amount  reipiired  to  fulfill  the 
previous  recommendations. 

{k)  To  reipiirc  each  half  year  the  publication  of  a  certified  list  of 
the  shareholders. 

(l)  To  i)rohibit  the  reduction  of  capital  stock,  and  to  com])el  the 

stockholders  to  make  pood   the  capital  if  it  should  be  impaired. 

Viile  .Tournal  of  the  House  of  Commons,  Canada,  ISdlt,  Appendix  I. 


II 


i*'  iM 


The  Case  nfjaitist  Vimdittion  Sevurcil  bij  llandx,        ^33 

tlic  first  cost  of  adjiistiiicnt  to  the  new  conditions, 
would  not  materially  suffer.  The  rate  of  (liscount 
would  ris(>  sufficiently  to  recoup  the  loss  of  working 
in  less  favorahle  circumstances.  }^>ut  the  financial 
interests  of  the  country,  the  shipping-  and  the  rail- 
ways, the  commerce,  domestic  and  foreign,  the 
industries  of  the  farms,  factories,  fisheries,  forests 
and  mines,  were  too  closely  and  strongly  connected 
with  the  hanks,  too  de]»endent  upon  them,  to  he 
unaffected  hy  the  conversion  of  eight  to  ten  millions 
of  dollars  of  active  hanking  capital  into  government 
deht. 

So  far  as  men  could  foresei'.  the  change  was  alto- 
gether likely  to  produce  a  commercial  stringency, 
and  the  mercantile  failures  that  follow  a  great  and 
swift  contraction  of  credit.  A  complete  recovery 
would  scarcely  he  possihle.  From  the  trade  and  the 
developnu'ut  of  the  country  there  would  liave  heen 
withdrawn  a  i)art  of  the  accustonu'd  measure  of  hank 
accommodation.  Should  the  change  he  gradual,  a 
positive  diminution  of  hanking  funds  might  not 
occur:  ('.  f/..  should  the  completion  of  the  change  he 
delayed  till  capital  stock  plus  deposits  should  equal 
the  total  (in  ISOS)  of  capital  stock  plus  deposits  jjIus 
circulation.  The  i)ressure  in  this  case  would  he  more 
slowly  applied,  and  ni'ver  so  great  at  a  given  instance; 
hut  during  the  period  of  transition,  the  husiness  of 
the  country  would  he  deprived  of  all  heiu'tits  from 
that  increase  of  accunuilation  which  is  a  feature  of 
any  progressive  national  economy.  Increasing  hank 
capital  during  such  a  period  would  not  make  up  the 
deficiency.  The  moneys  availahle  for  the  purpose, 
it  was  argued,   were   already  held   hy  the  hanks  as 


)!*■ 


'!t!l 


"II  n 


fii 


i 


p: 


V  .'V 


:ii « 


2:u 


The  ('inimliaii.  Ihinhimj  Si/s/rin,  1817-1S1>0 


deposits.  To  take  from  deposits  to  add  to  capital 
stock  would  hardly  improve  the  financial  situation.' 

Under  the  system  of  issue  against  si)eeial  si-curity. 
h'ss  attention  is  apt  to  he  jtaid  to  the  safe«;uard  of 
re(iuirin.!4'  a  lar^'e  paid-up  capital  from  each  hank 
Avithin  the  legislature's  jurisdiction.  The  tendency 
is  to  ])ermit  the  estahlishnient  of  small  companies. 
wh()  often  lack  the  mt-ans  to  extend  their  husiness 
heyond  the  locality  of  their  i»i'incipal  oHice.  and  fro- 
(piently  have  no  wish  to  do  so.  By  the  ori<jjinal  free 
hankin*;'  legislation,  hi'anches  were  forhidden.  i^ess 
stahle.  moi'e  dependent  upon  the  ])rosi>erity  of  the 
sint;le  district  whence  comes  their  supjiort.  less  ahly 
inana^cd.  hecause  the  salaries  paid  hy  a  ^reat  hank 
would  he  ruinous  to  a  small  one.  the  little  local  hanks 
are  mori'  likely  to  suspend  their  payments,  and  more 
likely  to  hecome  insolvent  in  times  of  dithculty  than 
larger,  stron<;er  institutions.  Americans  need  hut 
recall  the  crisis  of  IS!)H  to  tind  the  statements  of  the 
Canadian  hankers  confirmed.  The  risk  from  loose 
hanking-  is  merely  shifted  from  note  holdei's  to  the 
dei)osit()rs  and  other  creditois;  it  is  not  avoided. 
'J'hen.  too.  the  Canadian  government  would  he  liahle 
undei"  tlie  proposed  system  to  redeem  the  notes  of 
failed  hanks,  hy  no  means  a  frivolous  ohligation  when 
the  needs  arising  from  a  crisis  should  drive  in  the 
notes  to  he  exchanged  foi- gold,  and  the  call  for  ready 
money  was  hreaking  the  market  even  fortlu  govern- 
ment securities  held  against  the  hank  circulation. 

A  strongei-  argument  than  the  insufficient  guaran- 
tee for  the  inunediate  convertibility   of  hond-hased 

■  Vide  MiHielary  Ti men  and  lannraiice  Chronicle,  vol,  ii,  p.  <il4,  reso- 
lutions iulopteil  lit  a  meeting  of  bankers  lield  in  the  Mercliants' 
Bank  of  Canada  on  the  17th  Ajiril,  lSti!». 


i 


ii 


The  Case  ayainsi  Viiriilalidti  Srcmrtl  /ii/  liondx 


'  11 


bank  notes  and  ffovi'i-nnicnt  issiu's.  \vms  tlic  hick  of 
elasticity  in  such  systems  of  currency.  'I'iiis  ohjcc- 
tion.  presented  by  the  biinkei's  niid  others  witli  espe- 
cial forci'  in  iSCiS).  has  since  been  cnijdKit  icnlly  proven 
by  the  experience  of  the  I'nited  States  duiin^'  tin- 
last  two  decades  with  national  bank  notes.  Tlir  len- 
dency  of  him  who  issues  bond-secure*!  uotes  is  to 
invest  «)nly  so  much  of  his  capital  in  i)onds  as  will, 
with  his  capital  otherwise  invested.  briiiL;  in  the 
maximum  piotit  on  the  whole  anioinit.  The  motive, 
therefore,  to  the  issue  or  retirement  of  notes  is  oidy 
remotely  <;'overned  by  the  nund»er  and  amount  of 
payments  to  be  effected  by  this  medium  of  exchaut^c 
On  the  contraiy.  the  motive  is  (llmlJii  dei»endent 
upon  the  rate  of  interest  borne  u])on  bonds  receivable 
on  deposit — a  i-ate  determined  by  the  ;^()vernment. 
and  in  larj;-e  measure  ai'bitrarily  determined. 

For  the  automatic  exjiansion  of  a  currency  issued 
ui)on  the  j^eneral  credit  of  the  issuer,  the  attendant 
profit,  always  e(puil.  pi'actically.  to  the  market  late 
of  interest,  is  an  infallible  impulse.  It  is  doubly 
effective,  because  it  permits  an  inci-easeof  his  credit. 
and  thereby  an  added  gain  to  the  issuer.  whi(d»  gen- 
erally could  not  (  therwise  be  enjoyed.  IJut  when 
the  commerc'al  rate  of  discount  is  highei-  than  the 
interest  paid  on  the  govei-nment  debt,  the  banker  has 
no  inducement  to  divei't  his  cai»ital  to  the  ))urchase 
of  bonds  to  exchange  foi  n»*es.  Nor  will  he  have 
until  the  supply  of  loans  shall  I  ave  been  so  increased 
by  proffers  of  cajdtal  and  the  loanable  credit  which 
is  based  upon  capital,  and  utilized,  c  .f/..  by  the  ci'ca- 
tiou  of  deposits,  that  the  I'ate  of  discount  falls  to  a 
point  equal  at  most  to  the  interest  borne  by  tlie  bonds. 
This  contingency  has  seldom  hai)pened  where  a  gov- 


'Si;a 


!?• 


'rM\ 


Thv  CioiiKlidit  fhnd-ini/  S;/s/nii,  ISH-ISOO 


;:  !i 


1  ^1 


cnimciit  is  solvent  and  in  ^ood  credit.  The  const;- 
(luoncc  is,  as  in  New  ^'(»l•k  and  the  Ignited  States, 
that  the  hankers  working'  unch'i-  free  hanking  hiws 
retire  ahnctst  as  many  notes  as  the  hiw  will  pi-rniit, 
in  ordei-  more  i)rotitai»ly  to  use  th(>  capital  hy  which 
they  were  secured.  Kxi»ansion  of  the  hank  note 
cui-rency  then  occurs  only  in  circumstances  of  pecu- 
liar stringency,  when,  as  in  IStdJ.  a  money  famine 
forces  the  hanks  to  use  every  availahle  device  for 
increasing  the  currency,  though  not  so  mucii  for 
profit  as  to  ohiige  their  customers. 

With  the  currency  system  I'eorganized  on  tlie 
American  plan,  there  would  he  no  satisfactory  ])ro- 
vision  for  the  periodical  expansion  and  contiviction, 
the  causes  of  which  were  conveniently  sumriarized 
as  "moving  the  crops."  Mr.  King,  to  he  sure,  relied 
upon  a  regular  movement  of  money  from  east  to 
west  and  hack  again,  such  as  occui's  each  year  in 
the  United  States.  ]^ut  this  plan  concentrates  large 
sums  in  the  financial  centers  at  one  time,  and  stimu- 
lates s]»eculation.  only  to  draw  them  off  at  another, 
and  tighten  money.  The  process  is  costly  and  highl}' 
artificial.  It  cannot  he  used  without  considerahle 
friction.  The  tasks  of  moving  the  crojjs  and  meet- 
ing othei-  i)eriodical  demands  of  the  comtnunity  for 
increased  currency  and  credit,  c.  (/..  foi-  marketing 
the  wool  clip.  )»nying  import  duties,  negotiating  tin* 
lumher  cut.  huying  tlie  cargoes  of  the  fishing  fleet, 
l>aying  dividends,  etc..  were  not  those  which  would 
employ  through  the  whole  year  the  funds  of  the  hanks 
who  undtirtook  the  work.  In  each  of  the  provinces 
the    demands    caused    hv    the    harvest    and  the  fall 


trad 


i-e  the  greatest,  and  the  circulation  highest. 


in 


wer( 
Octoher.  Novemher  or  Decemher.     The  difference 


The  Case  (Kjainst  CirrtthtlittH  Sei'iircd  Ini  llomls       9;57 

between  tlie  liiH'lM'st  niul  lowest  jmioimt  of  notes  ont- 
staiidinfjf  at  any  time  dni'iny,'  the  year,  was  from 
twenty  to  fifty  per  rent,  of  tiie  minimnm. 

'I'hu  ability  of  tiie  l)anks  to  meet  these  brief  but 
periodical  and  lieavy  demands  was  deiiNcd  from  the 
elastic  qnalities  of  the  for/n  of  ere«lit  in  wliieh  the 
advances  to  hunlx-rmen.  farmers,  prodnce  bnyers  and 
the  like  were  n\ade.  i)ei>i'ived.  howevei-.  of  tlie  ad- 
vantages arising-  from  an  expansion  of  their  circnla- 
tion.  the  banks  wonld  have  slio-ht  indncement  to  pro- 
vide for  a  business  active  during-  only  three  months 
of  the  year.  That  they  should,  for  this  purjtose.  be 
content  to  receive  during  eight  or  nine  months  the 
meagre  rate  of  inti-rest  paid  by  government  on  an 
amount  of  cai)ital  ('(jual  to  this  expansion  and  in- 
vested in  bonds,  was  not  to  be  exi)ected.  Vet  this 
was  the  essence  of  the  proposed  jirovision  for  elas- 
ticity by  deposit  of  government  securities  to  cover 
the  maximum  circulation.  The  banks  would  find 
mori'  atiractive  investments  in  the  connnercial  [»ai)er 
of  manufacturers  and  impoi-ters  engaged  in  a  steady 
business,  and  usually  recjuiring  money  throughout 
the  year.  The  lai-ger  banks  might  still  have  the 
money  for  moving  the  croi)s.  in  the  heavy  reser\  c 
funds  kei)t  in  Loud  a  and  New  Voi-k.  but  they  were 
unlikely  to  withdraw  these  sums  unless  moving  the 
crops  were  more  ])rotitable  than  loaning  at  call  in 
Xew  York  or  London.  During  the  autumn  of  I8('»S, 
gold  was  worth  I  10  to  I  ]»ei'  cent.,  jtei"  diem,  in  N(nv 
York.'  The  substitution  of  a  bon(l-bas(Ml  foi- a  credit 
currency,  and  the  forced  i-etii'enu'ut  of  the  latter 
necessarily  involved  comparative  ligidity  and  lessen- 
ing  of    discount   acconnnodation.      l-'or   the   farmers 

Monrnal  of  the  House  of  ("onimons,  Canada,   istii),  Appendix  I, 
Reply  of  Mr.  .lames  Stevenson  to  (luestioii  !t. 


f 


i.t. 


■ 


Id'  -: 
I 


1 


m 


!     ' 


r»t. 


!     ! 


I    I 


1  .■ 


m 
'?(i'i 


a:38 


'/'/ifi  Ciniii'/idti  JJind-iiii/  >'i/s/t'm,  1817-18!M) 


.'iMil  those  (lc])('M(l('iit  iipoM  tlicin.  tlic  most  itiiportiint 
class.  iniin'Ticiillv  jit  least,  in  tin-  whole  coiiiimiiiity, 
these  results  nieiiMt  scjircitv  of  money  (hii'iiiK  hiirvest 
time.  I'etliiced  |iiices  for  cereals  ami  other  products, 
ami  serious  annual  injury. 

in  yet  another  way  wei-e  the  intei'ests  of  the  I'arm- 
in^  community  opposed  to  the  introduction  of  the 
Americiin  system.  I'pon  this  ])oint  I  prefer  to  ([Uote 
the  admiriihle  discussion  l>y  Mr.  (Jeorjjfe  llaKiu^: 
••'{'he  (|uestiou  <d'  hank  circulation  is  essentially  a 
(piestiou  for  the  a^riculturiil  districts,  and  the  small 
towns  and  villages  which  dci-ive  thcii'  existence  and 
sui)i»ort  fi'om  them.  Withdrawing'  hank  circulation 
or  coverinj;-  it  with  (JovernmenI  securiti«'s,  would  l)e 
felt  far  more  severely  in  such  districts  than  in  com- 
mercial centres.  There  is  no  consideiahh'  volume 
of  lirculat  ion  in  lar<;'e  towns  and  cities,  either  in 
C'aiKidii  or  anywhere  (dse;  husiness  heiu^;"  transac  1 
mostly  in  checiues.  and  tlu'  system  of  deposit  in 
hanks  heinii'  almost  univei'sal.  vei-y  little  interrup- 
tion would  he  caused  to  husiness  there  by  the  with- 
drawnu'ul  of  cii'culatioi!.  except  by  reaction  from  the 
smaller  towns.  Ihit  in  the  country  districts  hank 
circ  ulation  is  a  matter  of  vital  importance,  for  tlu; 
hankiu}^  facilities  which  ai"e  essential  to  their  de- 
velopment are  larg'el>  deiived  from  it.  In  case  of 
an  alteration  of  the  currency  laws,  there  can  scarcely 
he  a  (h)uht  that  the  loans  of  the  hanks  in  country 
towns  would  he  larju'ely  cut  down.  Many  agencies 
Would  heconu!  so  unprotitahle  under  this  process  that 
they  would  be  discontinued  altogether,  and  all  of 
them  would  be  injuriously  affected.**' 

'  /hid,  I{ej)ly  to  question  L'. 


.J//',  /io.'^r's  litinkimi  Si'/ifiiH' 


^:ig 


;{!>. 


.M|{ 


KOSK  s    |{.\NKIN(i    SCIIK.MK 


It  would  Im'  liiinl  to  cstiiiKitr  ill  wliiit  iiu'asiirc  the 
Miiiistff  of  Kiiiimct'  wns  iiilhiciicrd  hy  the  t'\  idciicc 
<»l)tuiiit'd  t liioii^^li  Ills  ••(imiiiittt'c.  The  clmriictcristic 
lK»iijts  of  the  ciinciicv  iiiid  Imiikiii};"  icsolutions 
which  lie  pn'si'iilt'd  to  tin-  House  of  ('oiiinioiis  oil  the 
14tli  Miiy.  ISOi),  Were  decided  upon,  it  is  highly 
prohiihie,  hefore  the  orij^iiial  coiiiiiiittee  was  struck. 
The  I'esojutioiis  had  heeii  prepared  under  the  su]>er- 
visioii  of  Mr.  K.  II.  Kiii^'.  and  as  in  the  inenioraiidiini 
approved  hy  his  hoai'd  of  directors  a  year  and  a  half 
hefore.  the  leading'  feature  was  the  reconstruction 
of  J)oniinion  hank  law  upon  the  model  of  the 
••National  Hank  Act  ""  of  the  I'liitcil  States.' 

The  (Joverniuent  projiosetl  to  leave  the  hanks  alone 
until  the  1st  duly.  1S7I.  hut  after  that  |(/|  to  ohji^e 
them  gradually  to  redm-e  their  unsecured  circulation 
hv  'io  i»ei'  cent,  a  vear  until  the  whol.  should  he  re- 
tired:  (/>)  to  permit  the  hanks  to  issue  instead,  up  to 
the  amount  of  their  capital  stock  paid  in,  notes  of 
uniform  api)earance,  furnished  hy  the  government, 
and  heariii}^  on  their  face  the  statement  of  their  heing 
secured  hy  the  deposit  of  Dominion  securities;  these 
notes  were  to  he  i»rociirahle  hy  the  deposit  of  gold  or 
Dominion  notes  with  the  government,  whose  otiicers 
were,  in  i-etnrn.  to  furnish  the  hank  with  notes  to  an 
equal  amount,  and  to  hold  against  them  securities  is- 
sued for  the  purpose,  and  hearing  interi'st  for  ten 
years  after  the  1st  July.  1S7I :  (r)  to  make  the  secured 
notes,  so  long  us  they  were  redeenie(l  in  specie,  legal 
tender  throughout  the  Dominion,  except  at  the  office 
of  the  issuing  bank,  and  a  redeini)tion  ofKce  to  ho  es- 

'  Letter  of  Mr.  (Jeorge  Ihij^ue,  .Montreiil  Uazdtc,  .'Huh  .laiiiiiiry> 
18it0. 


m 

■■'!. 


) 


t  ■:!:  » 


!   !    •■ 


■Mi'' 


!i 


|l! 


i.! 
; 
I 


240 


77ie  Canadian  Banking  Si/slcni,  1817-1890 


tablished  and  kej)!  at  Montreal,  or  the  capital  city  of 
the  i)rovince  in  which  the  bank  shonld  be  situate:  (d) 
to  require  the  banks  to  hold  reserves  of  specie  eipial 
to  20  i)er  cent,  of  tlie  secured  notes  in  circulation,  and 
one-seventh  of  the  deposits  at  call:  (c)  to  nuike  the 
notes  tlu'  fii'st  charge  ujton  the  assets  of  the  bank  in 
case  of  insolvency,  the  deposits  at  call  and  not  bear- 
ing interest,  the  second  char<;je:  ( _/' )  to  impose  upon 
th(^  banks  a  variet}'  of  safeguards  and  restrictions 
similar  to  tliosc  already  in  force,  and  to  others  recom- 
mended by  the  bankers:  to  ])i'ohibit  note  issue,  except 
by  incor})orated  banks  and  the  government,  to  grant 
no  new  charter,  and  to  renew  no  old  one  excei)t  upon 
the  conditions  set  forth  in  the  resolutions.' 

In  the  speech  introducing  his  resolutions.  'Mr.  Kose 
averred  that  tht*  Government  had  no  hostility  towards 
the  banks,  and  felt  that  for  the  important  commercial 
operatioiis  essential  to  the  country's  prosi)erity.  it  was 
indispen -iably  necessary  that  the  banks  should  be 
prosperous.  The  (lovcrninent,  he  said,  had  no  espec- 
ial object  of  its  own  to  gain  by  the  substituti(m  of  a 
sjstcm  of  banking  different  from  that  then  existing. 
For  the  proposals  which  I  have  included  under  group 
"f,""  theri'  is  neither  time  nor  need  to  iinaly/.e  his  ar- 
guments. These  (luestions  nuist  be  treated  further 
on.  AV'itli  respect  to  the  proposed  changes  in  the 
system  of  note  issue,  the  Minister  declared  that,  *-It 
is  the  duty  of  the  (foverinnent  not  to  interfere  with 
banking  proper,  but  to  see  that  the  circulation  which 
the  public  at  larg<'  is  bound  to  take,  should  be  placed 
on  as  sound  and  wholesome  a  footing  as  possible." 
Or  again.  "It  is  of  essi'utial  importance  to  tlu'  inter- 
ests of  the  country  that  the  circulating  me<lium  should 

'Ihiniilton  >>«'<nryr,  17tli  Miiy,  13(i!i. 


-^    \ 


Mr.  Jidsp'.'i  lSa)iki))(i  Srhemo 


241 


bo  i)laci'(l  oil  a  sound  uiid  uniform  basis. "'  If  the 
conclusions  of  chapter  v.-  as  to  the  legal  and  (x'oii- 
oinic  character  of  bank  notes,  are  correct,  we  cannot 
accept  the  Finance  Minister's  implication  that  tlie 
note  issue  is  not  a  function  of  banking-  in  the  strictest 
sense  of  tlie  term.  As  to  his  protest  that  "the  (io\ 
ei'iiment  has  no  especial  object  of  its  own  to  gain:  tin; 
(jovernment  is  not  eml)arrassed  by  any  jiressing 
wants,'"  it  will  be  well  to  reiiu'inber  that,  by  the 
terms  of  the  Hi'itish  North  America  Act.  the  Domin- 
ion was  obliged  t(»  construct  the  Intercolonial  Railway 
between  (Quebec  and  the  Maritime  Provinces.  Tht^ 
twelve  millions  odd  which  could  have  been  obtained 
by  reciuiring  the  currency  of  the  country  to  be  covered 
by  government  lionds.  may  or  may  not  have  atl'ected 
the  attitude  of  the  ^Minister  of  Finance  towards  tlie 
banking  system.     The  reader  ciin  judge. 

Further  than  that  the  currency  of  Canada  should 
be  secured  and  uniform  througliout  the  provinces, 
Mr.  Rose  found  little  to  say.  These  desiderata  were 
certainly  important,  and  we  may  acknowledge  now 
that  during  the  next  twenty  years  they  would  have 
been  more  nearly  gained  under  his  plan  than  under 
the  policy  that  finally  prevailed.  But  they  would 
have  been  secured  at  the  cost  of  idasticity  and  ade- 
(piacy  in  the  cunu'iicy.  relative  shrinkage  of  discount 
accommodation,  and  artificial  rise  in  the  average  rate 
of  discount.  So  great  a  cost  can  hardly  be  compared 
with  tlie  I'ow  losses  caused  by  the  nominally  unsecured 
currency  that  Canada  retained. 

Some  intimation  of  the  ( iovernment's  plans  had 
gotten  out  before  the  resolutions  were  presenti'd.      <  >n 

'(Jtlawa  Times,  15th  Miiy,  ISf.d. 
-  Vide  note  at  end  of  iliaptL-r  v. 
10 


I   I,. 


!■,    U 


i 


i 


i!  i  ! 


Tlir  CautiiUan  lUinkinij  Siji^levi,  1817-181)0 


tlio  I7tli  April.  1S(51J,  tlic  hanks  of  Ontario  and  (jhiclx'c 
a(l()])tc(l  resolutions:  "That  in  any  renewal  of  the 
charters,  it  is  important  foi'  tlie  best  inter(>sts  of  the 
j)ul)li('  that  no  eliang'es  of  fundamental  character  he 
made  in  the  system,  and  particularly  that  the  note 


circulation    l)(>   oreservi'd. 


On    the    same    dav    tlie 


Halifax  hanks  (h'clared  that  the  system  in  force  in 
Nova  ScKtia  had  ])roved  satisfactory,  that  any  chan};-e 
was  neither  asked  for  nor  desired.  Dnrinj;-  the  ses- 
sion, some  seventy-two  i»etitions.  eitlier  a^^ainst  the 
resolutions  of  Mr.  Hose.  or.  '-that  no  chanj^cs  of  a 
fundamental  character  he  made  in  the  present  system 
of  hankii!;^/'  (<r.  "that  th(  circidation  of  the  hanks 
may  he  [treserved  on  suhstantially  t lu'  present  basis,"' 
were  presented  to  the  House  of  Commons.     Of  these 


pet  it  ions,  si 


)me  ten.  to  be  sure,  came  from  the  baidc 


the  otht'is  weic  froin  the  leading;"  towns,  cities.  boar<ls 
of  ti'ade.  and  the  like.  lhi'ou;^liout  the  l)onnnion.  and 
respectable  as  well  for  the  numbei"  of  si^nat  ures  as 
for  the  cliaract(M'  and  inlliuMU'c  of  the  si<;uers. 

(Ml  the  1st  .li'ue  the  resolutions  came  up  for  con- 
sideiatiou.  .Mr.  Ilolton  believed  that  such  radical 
changes  in  th<>  lon.n-established  banking"  system  of 
till'  count  ry  should  not  be  made  without  mature  de- 
liberation in  Parliament  and  in  the  country.  He 
iuMUediately  moved,  in  amendment,  to  postjione  the 
consideration  of  the  resolutions  until  the  next  ses- 
sion.-' 'IMie  debate  that  followed  was  acrimonious, 
able   and   suj;"^"est ive.      ^h*.   MacKenzie  seconde<l   the 


motion.  an> 


lore    witness   to   the  nearl\    unanimous 


opposition    of  the    jucss    to    Mr.  l\ose"s  policy.      Asa 
wholi'.  the  scheiiie  ha<l  been  universallv  coudemueil.' 


Mo 


r  liir, 


Tiiuf 


'/  I nmirii/irt  clivonii'le,  vol.  ii.,  |i.  lil  I. 


Iliiniiltini  Spertuln)-,  :.M  .Imu', 
Otlawii  'rimes.    Itli  .luiic,  l^"i'.'. 


1  SI  11 1. 


Mr.  Rosf's  IliDtkiiKj  Scf/nnr  24)? 

-Mr.  C'artwri^lit  coMccdcd  the  few  tolcriiblo  ai'jj:u- 
iiu'iits  thai  tlu'  (ii()v«'niiJU'iit  liiid  ur^cd.  and  tluiscon- 
ccdtMl  all  lln'.v  wiTc  to  ui'^c.  tor  in  Iiis  lii'st  spt'ccli 
y\v.  Kosc  (juite  c.xliaustcd  his  ai'scnal.  Hut.  Mi-.  Cart- 
\vri^-ht  ()I>j('('t('d,  the  i>hiii  involved  a  radical  elianj;"e. 
If  the  ^'ovei-niuent  should  issue  new  seeui-ities  to 
cover  the  notes,  tlie  loan  was  practically  coinpulsory, 
'I'he  measure  would  esiiecially  alTect  (>ntaiio.  where 
the  annual  exi)ansion  of  the  currency  and  the  need 
foi-  it  were  the  greatest.  The  jtroposal  utterly  wanted 
provision  for  elasl  icity.  y\y.  Kose  had  miscalculated 
tlie  amount  necessai'v.  after  his  plan  hecame  law.  to 
resloi\'  the  hanks  to  their  pi'evious  position.  In 
(  Mitai'io.  alone,  it  would  nee(l  eioht  or  nine  millions.' 
Mr.  (lalt  ar<;ued  that  the  National  P.ankin;^'  System 
had  never  heen  ti'ied  hy  the  sullicicnt  test   of   workinj.^ 

'  In  ciisc  tilt'  plan  was  cariicd  lliriiMj;li,  ainl  the  t)aiiks  acci'iiled  it, 
saiil  Mr.  Knsr,  tlii'V  wonM  iiccil,  to  covci'  inaxiiumii  ciiciilatinn,  as 

On  the  :;  I  St  ()('l(iI)or,  lsi^ S|."),  Ii'ii,n(iii 

•_'ti  iK'i'  I'l'iit.  of  tlic  niaxiiiiuMi  circiilatioii  to  lu' 

lii'lil  as  s|n'('i(i  rt'scrse ;i.()L'4,i"i(i 

I    7  iif  ilf|>i)sits  at  call,  not  lieariiii;  intficst.  tn  he 

hi'lil  as  s|)iM'io  rt'siTve I  ,'.tiis,(i(H) 

|-_'(i,ir_', (1(1(1 
l.i'ss   s|M'ci(',    Doininiiin   iintcs  and   Unvfiniricnt 

ilchcnturos,  alicaiiy  hcM  hy  the  hanks I  I,7s.">,m"i 

I>ilVt'rcni'c  niniiT  Mr.  Ruse's  |ilan ^  S,:;-_'7,(i(iii 

<'i|iiiviihMit  ti»  7.(!o  |ii'f  cent  ui»in  the  liii:lnst  ciiciilat  ion,  for  seven 
years  (the  I'efiod  of  tcansitiiini.  or -.(i:;  jur  ceiii.  upon  tiie  iiitrhest 
li'_'iiie  yet  reached  liy  the  item  n(  discounts  lOttawa  '/'tines,  \'>\\i  May, 
|s(;:i.) 

Mr.  !!(  se,  howevei,  nniitted  all  account  id'  the  larjre  amounts  of 
uni.-siied  notes,  which  as  till  nmiiev  in  the  hauils  <  f  hranclics,  were 
.imple  and  costless  suhstitidions  i'or  ci|ual  amounts  id'  specie,  and 
yel  never  appeared  in  the  returns  ol'  the  "Notes  in  ( 'irculation.'' 
I'his  .id\anta<_'e  would  liave  lieen  lost  under  li  is  >chcnn',  as  well  as 
the  peculiar  hcnelits derived  liy  country  districts  Iriun  h ranch  haiik.s 
and  tiie  nolo  issue  according  to  the  existing;  ay.stiun. 


^1?^ 


B 


mm 
a'  .;■ 


I. 


''tit 


) 


il 


IV 


v';i'i' 


244 


T/ie  Cidiadian  Bonk-in;/  >'<i/s(citi,  1817-1890 


on  the  {^old  basis.  H(^  objected  to  the  plan  of  niaxi- 
niuni  deposit  of  security  as  unlikely  to  work,  and 
declared  the  time  uupropitinus  for  so  radical  a  change. 
Friends  of  the  ( ^tl^('rnnlent,  anion^  them  ^Ir.  Tilley. 
spoke  in  reply.  Debate  was  continui'd  with  spirit 
until  midnij^ht.  (Jeneral  and  stron*;"  opposition  to 
the  plan,  even  by  staunch  sujtporters  of  the  (Jovern- 
ment,  was  thoroughly  and  ably  numifested. 

The  next  day  the  resolutions  were  considered  in 
tlie  Privy  Council,  and  rumors  of  a  cabinet  disagree- 
ment became  curi'ent  in  Ottawa.'  Certain  it  is  that 
duriujjj  the  next  fortnight  nuiny  of  the  earlier  con- 
verts lost  faith  in  the  banking  tlu'ories  of  Mr.  iiose. 
The  (lovernment  had  more  important  ends  than 
forcing  a  rejuvenated  (  irrency  scheme  ujion  the 
country,  approved  though  it  was  by  their  own  Finance 
Minister,  by  the  general  manager  for  their  liscal 
agents,  and  even  by  worthy  statesmen  in  the  great 
republic  on  their  south.  They  could  ill  aft'ord  to  im- 
peril their  majority,  and  they  left  the  banking  qu"s- 
tion  undisturbed  until  the  ir)thof  June.  The  Minister 
of  Finance  then  announced  to  the  House  of  Com- 
mons that  "the  (lovernment  would  have  hern  glad 
if  there  had  been  a  ready  acquiescence  in  the  princi- 
ples involved  in  the  resolutions.  But,  believing  as 
they  still  did,  that  the  reforms  embodied  in  them 
were  such  as  to  meet  with  the  general  acceptance  of 
the  counti'v."  the  (Jovernment  was  willing  temi)oia- 


rily  to  withdraw  its  i»roposah 


•'  In  the  next  ses- 


sion of  Parliament  the  ( Joveinnient  would  again 
bring  before  the  House  the  considei'ation  of  these 
resolutions.  ■■-' 

'Hamilton  Spectator,  VA  Tune,  ISH!). 
-llaiuilton  Spgiiiitor,  Kitli  June,  ISGi'. 


The  JJunkiiif/  Poh'n/  of  Sir  Froiicis  Ifinrkfi         245 

Two  and  ;i  half  months  latci-,  tlio  Hon.  Jolin  Kosi? 
had  resigned  the  ^Ministry  of  Finanee.  L'^on  Ids 
departure  from  the  (tovernment.  the  (h'feat  already 
inflicted  on  the  dangerous  hanking  policy  which  he 
advanced,  became  certain  and.  in  great  measure, 
permanent. 


M**- — TIIK    HAXKIN(i    I'OI.ICV  OK  SIK   KUANCIS    UINCKS 

Neither  the  pi'ecedents  of  Mr.  (lalt  noi*  the  plans 
of  ]\[r.  Kose  were  followed  1)\'  the  next  .Minister  of 
Finance.  Sir  Francis  Hlncks.  having  s]>ent  tlie  pre- 
ceding fifteen  years  as  a  ci'own  governoi'  in  the 
British  Colonial  service,  was  now  i-eturned  to 
])ominion  politics,  and  had  accepted  a  seat  in  the 
Cahinet.  Sir  Francis  resolved  to  consult  the  hank- 
ing exjierts  before  he  pre))ar(>d  his  proposals  for  a 
general  Dominion  Hank  .\ct.  In  the  conferences 
Avhich  wei'c  held  the  bankei's  found  opportunity  to 
express  their  views  directly  to  the  government.^ 

What,  i)robal)ly,  was  the  attitude  of  the  hankers 
towai'ds  the  (piestion  in  1870  ^  They  believed,  j>re- 
sumably.  that  good  banks  were  conducive  to  the 
general  well-being  of  the  country,  that  upon  this 
well-being  their  own  pi'os])erity  was  lai'gely  depen- 
dent. The  natural  and  pi-eferable  view  is  that  the 
l)rincipal  object  of  the  bankci's  was  to  secure  the 
revision  of  banking  law  best  calculated  to  promote 

'Iain  inl'uriiH'd  hytlif  I>i'iiaitiiit'iit  nt'  Fiiiiuict' that  of  lliesc  iiu'et. 
in^s  IK)  iiiiiiiites  were  ke|>t.  I'rinii  the  stiiilciitV  jifiint  of  \  it'W,  the 
hick  (if  Hiinh  it'Cdi'ils  is  most  iinfurtmiute.  Tlie>'  woiilil,  no  doubt, 
have  filled  many  volumes;  a  \ ast  amount  of  coiiteiniioraiy  fvidence 
upon  tliat  sta>:e  of  Canadian  banUiiii:  would  liuve  been  iiicserved 
and  mucii  li>ilit  tiiroivn  upoii  tlie  real  |iosition  botii  of  the  bankers 
and  of  tlie  (ioverninent. 


sua 

'J: 


:).,. 


.'   \ 


'■ 


1 


h  : 


,    !■ 


ti^ 


If       * 


240  The  Canadian  IJankiiif/  Si/.stnn,  1817-1800 

the  s()Uii(ln(>ss.  security  and  tfficii'ncy  of  the  l)ankiii<;" 
system.  ^VllJueve^  tlieii-  ultimate  puriioses  in  1S.")1I. 
ISOSaiul  IS(il).  it  was  not  the  atlvanta.u"es  wiiieli  they 
mi<;lit  themselves  enjov-  uiuh'r  eareU'ssly  eou!- tiucted 
k'gishUion  tluit  a])i)eare(l  to  <letermine  the  jjroposals 


for  reform  suhmitte(l  h\lhe  several  l)ank^ 


It  was 


tlu'  desire  for  I'estriet  ions  upon  loose,  unsound  and 
illegitimate  practice  hy  their  rivals  and  competitor^. 
The  same  remark  is  true  for  ISSO  and  ISHO,  ( )ne  may 
eonclutle.  tl'*'i('fore.  that  had  theii-  ends  in  ISC.I)  7I 
heen  jtui'ely  seltish.  the  practical  action  of  the  hankers 
would  have  heen  no  ditfi'rent  from  what  nught  have 
heen  exi)ected  accoivling  to  our  othei-  view  of  tludr 
motives.  We  siiould  have  had  t'  i  an  apt  Caiuidian 
example  for  Adam  S)tuth  s  ohservatioii  (d"  nuiiTs 
strife  for  pei'sonal  gain  :  ••  I'.y  [tursning  his  own 
interest,  he  frequently  jiromotes  that  of  the  society 
more  effectually  than  wlie/i  he  really  intends  to  pro- 
mote it.""' 

The  i)olicy  of  the  (Jovernment  was  indicated  in  the 


>\)Qi 


ch    with    which    the    ( ;ovei'nor-(  Jeneial     o]»ened 


Parliament,  the  Kith  Fehruarv.  INTO 


A   measure 


intended  to  secure  safety  to  the  comnuiiuty.  without 
interfering  with  the  legitinuite  operations  (d'  the 
banks,  will  he  suhmittecl  for  your  consideration,  ami 
Avill.  I  trust,  he  found  calculated  to  place  these 
important  interests  upon  a  sound  and  stable  i)asis.'"-' 
On  the  1st  Marcdi.  Sir  Francis  llincks  brought  down 
to  the  House  of  Commons  his  rjesolutions  on  Hanking 
I    Currt'ucy.'        In     the     speech     introducing     his 


am 


"Wealth  mI'  Naiioiis,"  lik.  iv.,  clia] 


>.  11. 


-rarliaiiientarv  r)el)att's.  (iiiiada.  vol.  i.,  p 


Tl 


lis  istlii'  lirst  <•( 


tlie  two  voliinu'Sdr  rt>|p()rts  pii!)lislieil  as  a  private  iiiuli'rtai<iii);  liefcuc 

tlu'  oliii'ial  series  hejiaii,  ami  unliiiarily  known  as  "Cotton  Del'ates.'' 

The  resolutions  are  to  he  foiiiid  in  the  Canailiaii  new.spapers  ot 

the  -d   ^larch,  ls7it,  and  ill  the  report  of  tiie   Deiiates  for  tiie  pre- 


VIO'IS   ( 


lav. 


The  Ihnik'nKj  Poliri/  of  Sir  FranciK  IIiii</,'s  247 

inoasurcs  the  Minister  of  KiiKiiu'c  cinphasi/AMl  tin- 
iK'f'd  (>f  adopting-  a  genci-al  and  unifoi'ni  hanking  law 
for  the  wliolo  Doniinioii.  a  need  iTiidcicd  the  more 
ini|M'i'ativ('  by  tlii'  charters  ahont  to  cxpiri'.  ami  tlu' 
jx'titions   then   before    Parliament   for  new  ineorimr- 


ation^ 


The   safeu-uards    abont    the    eurrenev    werc^ 


diffeient  in  the  different  pi-ovinees.  and  the  limita- 
tions npon  issne  different.  Expei'ience  tanghl  that 
the  note  holders  shonid  ha\e  greater  security.  Vot 
the  jx'ople  were  used  to  the  credit  accommodation 
based  upon  the  note  issue,  thei'e  being  not  less  than 
eight  oi'  nine  million  dollars  of  such  loans  in  Ontario 
and  (Quebec  alone.  ()wing  to  the  necessity,  undei- 
the  American  system,  to  withdraw  this  accommoda- 
tion, it  was  not  expedient  to  hav<'  the  currency 
covered  by  deposit  of  government  securities.  Public 
opinion,  said  Sii-  Kiancis.  was  against  a  govei-nment 
Bank  of  Issue,  and  he  disclaimed  any  i)lan  of  thai 
chai'acter.  Jle  dei)recated  appeals  to  sectional  feel- 
ing. And  that  they  might  be  brought  to  the  gi-eatest 
possii)le  pei-fection.  he  urged  the  House  to  ti'eat  the 
resoluti»»ns  in  ^n  unpartisan  spirit.' 

The  (U'bates  in  the  House  turnecl  mostly  upon 
(lU(.'Stions  of  minor  detail.  It  is  (.'haracteiistic  of 
ministerial  government  that  the  trenchant  and  deci- 
sive discussions  are  fre(pienlly  (  arriecl  on  and  con- 
chuled  '.n  council  (duimbei-s  (U-  departmental  oflices 
lung   be'^ore    the    final    nieasui'e   is   sui)mitted   to   the 


1 


egl.datl  re 


L'nder  Sir    Francis    llincks.    moreovei- 


tl 


K    ban. ring   p;.iic\     ( 


if     the    (iovei'unient    had    been 


\  *" 


ah!!i>st    completely    revel'sed    within    the    year.      The 


'Tliis  ('oiidciiseil  erpoK/  of  tlie  Minister's  ]irin('i|ial  UKitixcs  is  I'ni- 
lated  from  iiis  introdrictory  siioech,  anil  tlu'  reniarUs  aftt'r\  ards 
nunli'  1)V  iiini  in  tiii;  course  of  the  ilebatc. 


! 


i 


I  ti.l 


248  T/ir  C(i)i(iUi(in  liankiiif/  S//s/rn),  1817-1890 

retention  of  tho  bank  note  issue  against  j^enerai 
credit,  for  wliicli  tlie  Opposition  fought  in  1S'')1>.  was 
now  conceded.  Still,  tlie  resolutions  were  In  some 
resjx'cts  a  coniju'oniise.  and,  as  a  coni])roinise.  o]»en 
to  ol)jections. 

<  >ne  of  tlie  niori'  important  contests  occurred  over 
the  minimum  of  capital  on  which  a  hank  should  he 
l)ermitted  to  hegin  and  to  continue  its  husiness.  This 
discussion  was  stinuilated  hy  Sir  A.  T.  Gait,  who 
ohjeoted  to  the  original  i)roi)osal  of  the  Minister  t<t 
reiiuire  ij^l. ()(»(>.(»(»().  of  which  s-joo.odo  should  he  paid 
ui>  before  the  beginning  of  business,  and  twi'Uty  per 
cent,  in  each  yi'ar  thereafti'r.  l-Jranch  banks,  he 
said,  were  n  )t  the  best  pi-ovision  for  rural  districts: 
in  times  of  ]tressure  the  larger  banks  contract  their 
rural  loans  to  meet  urban  drains.     Others  said  that 


numagers  of  local  banks 


are  nu 


)re    interested   in   the 


Avelfar(>  of  the  surrounding  country,  and  know  more 
of  rui'al  necH'ssities.  Local  banks,  they  thought, 
better  serve  the  country.  Jiui-al  districts  cannot 
raise  the  larger  capital,  and  have  no  business  which 
i-e(iuires  it.'  To  permit  the  existing  small  banks  to 
go  on.  and  not  to  i)rovide  foi- new  ones,  was  to  per- 
petuate an  objectionable  anomaly. - 

Sir  Francis  replied  that  it  was  necessary,  under 
the  system  of  note  issue  adopted,  to  ])rovide  the 
security  of  a  large  paid-up  capital.  Any  person  (]v- 
siring  to  invest  in  banks  would  have  no  difficulty  in 
obtaining  shares  in  some  of  the  established  banks. 
•'There  was  no  difficulty  in  establishing  agencies  in 
all  places  where  agencies  shouhl  be  established.    His 

'Debutes    "'  snjirii,    pp.   l'im,    l'67,   ;'>1  I ,    Messr> .  (lalt,  ("olhy  aiul 
IMokiird. 
'lliiil,  ^lessrs.  Mackenzie  ami  Cartwri^ht. 


I  { 


Till'  l)(inkiu(j  rolirji  of  SI/'  Francis  Unices         249 

iinpiessif)!!  was  that  both  in  tlic  Fnitcd  States  and  in 
this  country,  wliore  you  found  in  any  district  a  de- 
mand for  small  hanks  witli  small  capital,  the  truth 
was  the  people  who  wanted  it  were  hori'owers  and 
not  lendeis.  "•     ■'■'     '''     '■'     Existing   hanks  could 

jLjet  their  chai'ters  renewed  without  increasing  their 
capital.""'  Small  hanks,  he  concluded,  were  always 
looked  upon  witli  a  certain  amount  of  suspicion.  But 
in  the  Marii'ine  Provinces  local  hanking  was  in  more 
geiu'i-al  favoi-  and  hetter  established  than  in  Ontario 
and  (^)nebec.  (."hietly  to  meet  their  needs.  Sir  Fran- 
cis Hiucks  conceded  the  i-eduction  (»f  the  mininuim 
authorized  cajtital  to  soOO. (»()().  the  payment  of  40  per 
cent,  of  which  was  recpiii'ed  before  the  corporation 
should  begin  business. 

The  clause  of  the  resolutions  linuting  the;  total  lia 
bilities  of  any  bank  to  thrice  the  paid-up  cajtital 
stock,  plus  its  specie  and  govei'iiment  debentures,  was 
withdrawn.  It  was  not  the  same  i-estriction  U]>on 
the  debts  of  a  bank  which  api»ears  in  the  ])rovince 
of  Canada  charters  and  the  circulars  fi-om  Downing 
street,  for.  according  to  that,  deposits  with  the  bank 
were  expi'essly  excluded  from  the  reckoning.  The 
sole  effect,  had  it  been  retained.  wouKl  have  been  to 
prevent  a  large  accunnilation  of  deposits  in  one 
bank.  Dejiositors  are  influenced  by  the  bank's  rep- 
utation: to  limit  the  amount  of  d(>])osits  would  have 
been  to  im}>air  the  motive  to  enhiince  tiuit  rejiutation 
by  careful  management. 

When  he  first  took  up  the  ([Uestion  Sir  Francis 
Hiucks  beliv  seil  th.it  t'le  banks  should  be  re(juired 
to  hold  as  minimum  reserves  an  amount  of  specie 
equal  to  a  fi    'mI  pi-oportion   of  their  liabilities.     ]>ut 

'Debates  "'  .•<"/'/•./,  |i.  .'UO. 


: 

■    ! 
i    ■ 


l\ 


i  \f 


'•'  RJ 


<  5».    i  1 


'J  If  / 


II, 
'  I. 


I 


, 


H 


<.ji 


7'//e  ('aiiii(ii(i)i  Hatik-iii;i  Syslrtn,  lblT-1800 


in  the  (•oiifcccnccs  witli  the  hiinkri's  tlic  Kiiumcc 
Minister  was  convinced  by  the  unanimous  (i|iini(»n 
and  sti'onj^  ai-^nnicnts  ofVcrcd  ajj^ainst  such  a  pi'ovi- 
sion.  'I'lic  rcj^uhil ion  \v;is  oniittcd  from  the  rcsolu 
tions.  iind  the  omission  justified  h\  the  idiuciph- tiuit 
a  resei've  which  nnist  not  heuse(|  is  no  reserve' at  all. 
that  it' t  he  ]iro|((»i't  ion  r»'<iuired  weie  only  moderate, 
the  tendency  wouhl  he  to  re^ai'd  tiial  as  sutlicient . 
and  that  all  of  tlie  innnediately  availa!)le  funds  <d"  a 
hank,  ('.  f/..  tlie  \ew  York  and  London  lialances  are 
not  specie.' 

'I'he  s(dieme  to  jj^ive  increased  security  to  the  note 
luddei's  hy  making-  its  notes  a  fii'st  lien  uiion  a  hank's 
assets  in  case  of  insolviMicv.  was  also  rejected.  The 
hankers  had  ollicially  si.  jfj^csted  it  in  their  resolutions 
of  the  17th  A]>ril.  ISii!);  they  had  mentioned  it  in  evi- 
dence ^iven  to  several  of  the  ])arliamentary  com- 
mittees. It  was  also  a]»]»rove(l  hy  such  publicists  as 
tlie  Hon,  1{.  .1.  Cartwri^ht  and  Sir  A.  T.  (ialt.  Sir 
Francis  iiincks  held  to  the  view  that  through  su(di 
a  provision  the  stability  of  the  banks  would  be 
jeopardized  by  the  tendency  of  depositors  to  start 
runs  in  oi-der  to  convert  their  ordinary  claims  into 
privileged  liens. 

Some  objections  wei'e  made  to  the  jilan  by  which 
the  banks  lost  the  rij^ht  to  issue  notes  foi-  sums  under 
Ji'4,  but  the  banks  delibeiately  and  avowedly  sui'- 
rendered  this  right  for  valuable  considerations,  to 
wit:  abolition  of  the  tax  of  one  ])ei-  cent.  ])er  annum 
upon  their  note  circulation,  and  rejx'al  of  the  retpiire- 
nient  to  keep  one-tenth  of  actual  cai)ital  in  Dominion 
securities.     For  some  years,  moi'eovei-.   the   i^raikers 

MJeorjjje  Ha^iie.  "Hank  i^escrves,"  ./"Mr//i/< '»/'  tin  C'liindidn  llick- 
erx'  AsHocintlon,  vol.  i.,  p.  107;  Deliutes,  uf  su/ira,  y.  I'l?. 


'■{■ 


'iltr  lldllh'iiKI  /'(i/iri/  II f'  Sir  l-'rilinis  llliiiks 


!:.! 


had  not  tlioiiulit  the  privilege  iiii  iiimiixcd  Ixiirtit. 
In  timi's  of  (lifliciilty  the  sniall  notes  always  j^avc 
the  most  tronldo.  The  majority  of  holdtis  were 
usually  ]»ooi-.  i^iioiiint.  or  easily  alarnu'd:  a  run  ujioii 
a  hank  once  stai'tcd.  tiicy  always  joined  the  attack 
in  y^i'eat  numhers.  and  amon;^  tlu'm  the  feat'  <d'  loss 
I'eached  its  most  violent  manifestation.  The  itNtiie- 
tion  had  heen  fre(|uently  ui';^-ed  hy  hankers  them- 
selves as  a  necessary  reform. 

The  sevei'est  strilj^j^le  of  the  whole  dehat*'  occurred 
on  the  (juestion  su^'^'ested  hy  the  prectdinj;'  chan^f. 
and  (doseh  connectcMl  with  it.  Pursuant  t(t  his  jiolicy 
of  placiu}.;- all  the  ])anks  ui)on  the  same  fooiiu};'.  t he 
Minister,  on  the  Nth  Fehi'uary.  lS7n.  notided  the 
l->ank  of  Montreal  (d"  the  ^'overnmeiit  s  desiie  to 
tei'uiinate  at  the  end  of  six  months  the  ariau*;enieiii 
made  with  it  for  the  issue  and  reclemjitioii  of  |iro- 
vincial  notes.  The  ])lan  of  ])a>in^"  for  that  sei-vice 
by  conunission  was  disadvanta^'eous  to  the  ^-overn- 
ment.'  Sir  Fraiu-is  now  proposed  that  the  ;;-overn- 
ment  should  assume  the  issue,  as  Dominion  notes,  of 
the  papei'  ('Ui'i'<'iicy  under  $4.  and  that  the  hanks 
should  he  re(piired  to  hold  ;")(»  per  cent,  (d'  tlieii-  cash 
reserves  in  l)<innnion  le^al  tenders.      He  had  devised 

'He  liad  fiirtlit'r  fioeil  tlu-  poveriimciit  from  tlic  airiecinciU  of  the 
iith  NoveMil)er,  ls<)">,  liy  wliicli  tlicy  weiHMjMijreil  to  keep  Iroiu  ||nn,. 
(lOn  ti)  •*i")n(),(lO()  iit  their  eieilit  in  tlie  Uaiik  nf  ^loiitreal  without 
interest,  not  to  retire  tiieii'  aceinint  without  six  ui'Mitlis'  notire,  not 
to  iiive  sncli  notice  while  tlie  bani<  was  nndei  ailvani'es  to  the  jrov- 
ernment,  ami  not  dnrinjitlie  same  term  to  ileiiosit  tlie  piiidii'  moneys 
elsewhere  than  in  tlie  I'.ank  of  Montreal.  To  Sir  Francis  11  incks 
is  also  line  the  competition  in  l)iiyin<:  (jr  sellin;.'  jrosernnient  ex- 
change, estahlished  \>y  the  practice  of  invitinn  telegiaiphic  lenders 
from  all  the  hanks.  Previous  to  this  one  hank  had  enjuyed  a 
scarcely  (|ualified  monopoly.  r/'/<'  Journal  of  the  House  of  Com- 
mons, Canada,  Is7(i,  .Appendix  L',  pp.  4,  '>  and  lo. 


!|m' 


'J  If 

'J 


' 


I  I 


i 


til* 


t 


'■io'i  Th>-  Cniii'/iini  lloDkimj  Si/sf>-iii.  1817-18!»0 

Jl  system  of  rr^iiliitilijjf  the  Doiiiiiiioii  note   issue  ilif- 
ferelit  t'l'oin  the  (tile  in  foriw. 

'I'lie  itiiiieiple  of  (liis  rcHiilat ioii  wms  tliut  jiilinii'ed 
iiud  Jidvociifetl  by  the  Minister.  eNcii  in-fore  it  Wiis 
a(lo|.|e(i  l.y  Sir  Kohert  Peel  in  the  Hjink  Act  of  IS44. 
lie  lielieved  that  the  ••functions  of  the  Issue  Depart- 


ment   siiouhl 


automnticalh'    conlined   to  the  ex- 


ehan;;'e  of  nold  for  notes,  and  rice  msn  ;  that  an 
amount  can  he  estahlished  which  may.  with  i)erfect 
safc't.w  he  issued  upon  puhlic  securities,  and  all  beyond 
that  lixed  amount  should  be  iield  in  ^f<dd."'  The 
practicjil  measures  end)odyintf  this  ])rinci|)le  wore: 

(d)  'I'lif  maiint'tMiieiit  of  tin-  Poiuinioii  note firciilatioii  ilirectly  by 
tlie  Oiiverninent; 

(I))  Tlic  cstrtblisliinciit  of  liraiicli  .iII'u'L'H  of  the  lIcctjiver-CientTars 
Iifpartiiifiit  in  Montreal,  Ilalil'ax,  Si.  .Ii)lin  and  Toronto,  for  tin- 
issne  ami  redemption  of  notes; 

('■)  'I'lie  atitliori/ed  extension,  l)y  ( (rder-in Conned  on  report  of 
tlie  Treasury  I'mard,  of  the  issue  to  j!i,(i(Mi,iin(i,  in  amonnts  of  not 
more  than  r  I.'""', I"'"  at  a  time,  and  at  intervals  of  not  less  than 
three  months; 

('/)  Tiie  rei|iiirenient  that  tlie  Reieivur-Cieneralslioidd  hold  specie 
and  Dominion  dehentnreH  to  cover  the  outstandlnn  eireulation;  the 
debentures  to  be  isstiiMl  and  held  for  tiie  purposes  <tf  the  Act,  or  to 
lie  disposecl  of  temporarily  or  absolutely  in  order  to  provi<le  specie 
for  redemption;  the  debentures  not  to  exceed  so  per  cent,  of  the 
circulation:  the  specie,  as  a  f,  to  be  a  sum  «'(|tial  tu  l'-')  per  cent, 
of  the  debentures,  anil  never  less  than  1")  jter  cent. 

('I  Pro\  ision  for  the  issue  of  any  amount  reipiired  by  the  public 
convenience,  so  lonj:  as  the  excessover  |'.»,oo(i,(i(:n  should  be  covered 
liy  ei|iii\  ali'Ut  amounts  of  specie. - 

The  ( )pi)osition  favored  the  i)rovisi()n  concerninj^ 
bank  reserves  as  little  as  they  did   tlie  plan  to  auj^- 

^Momtiirii  Tiium  and  /iiHtir'iiu-e  Chronicle,  vol.  vii,  p.  I'l'i.  better 
of  Sir  Francis  liinckH. 

-Statutes,  Canada,  JSTii,  p.  n,  :'.:!  Vic.  cap. '.',  ".An  Act  to  amend 
the  Act  :'d  \'ic.,  cap.  4i>,  and  to  rejiulate  the  issue  of  Dominion 
notes." 


The  Jiind'im/  I'olirti  of  Sir  /■'rmin'.y  lliitik\ 


'IhW 


t  \ 


iiHMit  the  Ic^jftil  tciKk'r  issue,  .Mr.  .Mjn  Afii/ic  iidvn- 
ciitcd  tlie  jKilicv  of  iioii-inti'rfcrt'iu'c  liy  ;in\  tiiiiiK-nt. 
oni|)lmsi/,t'(l  llic  Iciidcucy  <»f  ^•ovfriiinnil  issues  tn 
(Icpi'eciatc.  and  accused  Sir  Francis  of  rescirtin;;-  tn 
the  proposed  increase  as  a  liol|t  in  ediirealin;^  the 
million  dollar  deficit  which  .Mr.  MacKeii/ie  detected 
in  the  foiniti'v's  fiiujnces.'  Mr.  Cartwrij^'lit  ohJecte(| 
to  the  tii'st  pi'oposal.  hecause.  first,  it  tended  unduly 
to  diminish  the  amount  of  p>ld  reserves  whicii  should 
be  ludd  in  the  country:  second,  it  was  a  scheme  to 
horrow  a  lary^e  sum  of  money  at  call,  or  at  shoi't 
time:  third,  it  appeared  to  him  to  he  an  expedient  of 
somewhat  ohjectionahle  molality  in  a  i»(ditical  sense. 
Others  complained  that  the  rule  would  Ik- simply  a 
means  of  forcinj^  from  the  hanks  a  permanent  loan 
e(jual  t(t  luilf  tlieir  reserves.  Their  arguments  will 
he  more  or  less  api)i"()ved  according'  to  the  reader's 
point  of  view. 

In  any  case  these  measures  of  the  (Jovernment 
must  he  rej^arded  as  a  fiscal  exjiedient  rather  than 
a  hanking  reform.  Tlie  (jovernment.  without  douht. 
was  obliged  to  do  something  with  i)ominion  notes 
already  in  circulation.  The  Minister's  ]dan  for  regu- 
lating the  issue  was  a  marked  improvement  on  that 
adopted  by  liis  predecessors.  Even  had  he  so  wished 
lie  would  have  scarcely  been  able  to  provide  the 
means  for  redr-mption  of  this  debt.  Furthermore, 
tin*  banking  interests  demanded  cei'tain  privileges, 
among  them,  a  monopoly  of  the  circuhnion  of  the 
country.  Sir  Francis  felt  obliged  "to  ctuitend  in  the 
interests  of  the  publii-  at  large,  that  they  were  enti- 
tled to  some  share  in  the  ]trotits  cd"  the  circulation." 
Though,  in  the  preceding  pages,  we  have  not  accepted 

'Debates,  nt  supra,  \>\k  l'oH  ami  s-Ji';  ihid,  p.  .VM. 


':»       I! 


) 


-1.) 


if 


i) 


1 


cut 


!      I 

1 

i 


.>t 


Tlir  Ciiiiailiini  f!tnikin>/  .Si/sfn/i,  1817-18f!0 


tliis  view  of  tlu'  stiil<''s  rt'hition  to  the  currency,  it 
must  he  sijid,  iirvertlu'lcss,  tliat  to  many  tlu>  reserve 
re(inir«'Mieiit  sccnicd  only  a  fair  price  foi-  the  conces- 
sions <4rantc(l  by  the  {government  to  the  hanks.  Tlie 
i'e<4uhition  was  modified  sii^litly  while  under  discus- 
sion and  linally  adopted  hy  i'arliameiit  in  the  follow- 
in;;  form:  "'rhe  hank  shall  always  hold,  as  nearly  as 
may  he  practicahle.  on<'-half  of  its  Cash  I'eseives  in 
honnnion  notes,  and  the  proportion  of  su(d!  r«'seives 
lield  in  I  >(  minion  notes  shall  never  he  less  than  oiu'- 
thiid  thereof. ■■      {',V.\  \ic..  cap.  "2.  ^  .").) 

,:;4l.-THK    •■.\iT    IJKSl'KC   Tl  .\(;    ISANKSANK    I!  A  N  K  I  .\(  i. " ' 

IS7(» 

The  ••Act  resjx'ct  inj^-  I'anks  and  I'ankin;;'."  em- 
hodyin;;'  the  I'esolntions  prejjared  hy  the  Minister,  was 
passed  hy  the  House  of  Commons  the  .^th  April,  hy 
the  Senate  upon  the  I'Jth.  and  received  the  royal 
assent  the  1:2th  May.   ISTO.      {'VA  \'ic.,  cap.  '2.) 

It  provided  that  in  any  act  estahlishiii};' a  m-w  hank 
or  reiifwin;;-  the  charter  of  any  existing-  hank,  the 
following;'  restrictions  sho  ild  he  incorjjorated.  certain 
exceptions  hein.n' ;;ranted  in  order  to  contirm  p'cnliai' 
features  in  the  chai'ters  (d'  the  P>ank()f  Hi'itish  North 
AuK-rica  and  I^a   P>amiue  du  I'eujde: 

(ft)  '1  he  hiniU  sluill  not  issue  notes  <ir  licf^iii  a  liankiiij?  l.iisiiiess 
till  >^L'iHi,ii(in  of  its  ciiiiital  sliull  liiive  lieen  /ji/ua  Jidr  paiil  up,  and  the 
lact  ccrtilied  to  l)y  tlie  Treasury  lioanl. 

I'm  Twenty  per  leiii.  of  tlie  siilisorilti'd  capital  shall  In-  paid  earh 
year  at'tiT  ihc  lie^inninir  oi'  Imsini'ss. 

I'l  The  notes  in  cireiilatii  n  shall  not  exceed  the  anionnt  of  the 
hank's  iniiini>aired  |iaid-up  laiiital,  a"d  no  noti' shall  i>e  issued  for 
less  than  ?4. ' 

ll>  a  M'piiriitc  >talMtc>  tlic  Imnlis  in  Nova  Scotia  ailinn:  iimlcr  proviiiciiil 
iluirtii>  wci-c  ciiiiiowi  Tcil  lo  issiir  notes  ror$i  nrid  up\v:iid<,  $.'o  liaviriK-  liecn 
ilip  iowc-if  ilrnoMiiiuilion  iicriuil li'il  liy  llie  la>\>  ol  llic  provincu.    i^l^i  Vic,  cap. 


n, 


\ct  lii'spcrtijui  Hunks  anil  Ihoik-inij,''  1870     tbb 


i't)  Notes  of  thel)ank  sliall  l)t'  received  in  p;iyiiu'nt  at  any  of  its 
ollict's,  li!it  siiall  not  lie  payalile  in  sjiecie  oi'  Dmninion  notes  at 
places  (itlier  limn  wliere  they  may  he  niaile  payahle.  One  of  sncii 
places  shall  always  he  the  hank's  chief  seat  of  hnsiness. 

(«)  I'lisnally  half,  ami  not  less  than  one-thinl,  of  the  cash  reserve 
shall  he  held  in  Dominion  notes. 

(./')  No  loans  oi' discounts  shall  he  made  on  the  seeuiity  of  the 
hank's  M\vM  stock,  hut  the  hank  shall  hav<'  a  privile^reil  jicii  for  any 
overdue  deht  on  the  shares  ami  unpaid  dividends  of  its  dehtors, 
and  may  ilecliiie  to  transfer  such  shares  until  the  deht  is  paid. 

(,'/!  The  paid-up  caiiilal  sliall  not  he  impaired  hy  any  ilivisinn  td 
profits.  Directors  concinriu";  in  such  impairment  shall  he  inilivi>lu- 
ally  liahle  fur  t!ie  amount  as  for  a  deht  due  to  the  hank,  ('apital 
lust  shall  he  madi'  up  forth  witli  hy  calls  on  the  shartdiolders  for  any 
unpaid  |Miiti<ui  id"  the  suhscriher's  capital  stuck,  and  hy  application 
lit'  all  net  proiits.  *  "  *  ('I'iiis  clause  was  desJL'ned  to  iirt^-ent 
that  reilucti'iu  of  capital  stock  on  account  of  losses  \\hi(di  had  heeii 
a  potent  source  of  e\  il  in  tin    past.) 

(//I  .No  ilixision  id'  profit  oy  way  of  dividend  ur  liomis  shall 
exceed  s  per  cent,  per  annum  until  the  rest  nr  reserve  fund,  after 
deihictinj:  all  had  and  doiilitful  ihdits,  shall  eipial  L'ti  per  cent,  nf  the 
paid-up  capital  sIock.  *  *  *  i.\n  nlistacle  to  su(di  extravairant 
and  ilisastroiis  divisions  liy  way  of  ho  mis  as  characterized  the  policy 
of  the  Hank  nf   I'pper  ( 'anada.) 

(/)  Suspension  nf  payment  of  any  liahilit  ies  as  they  accrue,  con- 
tinuing; for  ninety  days,  shall  constitute  the  hank  insolvent  ami 
deteimine  its  -.diarter,  except  for  the  purimse  nf  inakin<;  ct-rtain 
calls,  and  for  windint:  up  the  hnsiness. 

I  /')  The  property  and  asse'sof  the  liaid<  hein;.'  insuliicient  tn  pay 
its  liahilities,  the  shareholders  shall  he  liahle  for  deliciency  to  the 
amount  iif  their  rt'spective  shares,  in  addition  tn  any  amount  on 
tlmse  shares  not  yet  paid  up.  I'his  liahility  shall  he  enfnrced  to 
the  extent  that  the  ilirectnrs  deem  necessary  tn  pay  all  the  deiits  nf 
the  hank,  withmit  wailintr  fnr  the  cnllection  nf  dchts  In  the  hank 
ortliesaleof  its  propi-rty.  'I'he  dirt'ctors  shall  make  calls  for  not 
more  than  ".'o  per  cent,  nf  each  share  at  intervals  of  thirty  ilay~. 
and  nil  noticf  >iiv«'n  thirty  days  prinr  tn  the  day  mi  whiih  the  call 
hIuiII  he  payahle  as  soon  as  the  suspension  shall  have  continued 
for  six  mmifhs,  the  liist  call  t"  he  made  within  ten  days  after  the 
expiry  of  >i\  months  ^liarelmlders  failin_'  to  pay  any  call  as  it 
he(;i>nu'S  payahle  sliall  fi;rf«-it  any  claim  in  the  assets  nf  the  hank 
without  preventing  fh«'  recuvj-ry  of  siii'li  a  call,  or  nf  further  call-. 
In  the  ease  of  a  hank  / n  ■•ininnu/i'lile,  the  unlimited  liahility  of  the 
principal  partners  shall  accrue  a/ainst  tiiem  immediately,  without 
waitiui;  fnr  any  preliminary  procecdinjrs  whatev  IT.     *     *    »    (This 


^■» 


ii 


i 

h  i 

' 

t 

'•  1 

:      I 

} 

1 
1         '- 

i 


25C 


77ie  Canadian  Bankimj  Si/sfon,  1817-1890 


imi>rovi'iiieiit  in  the  iloiililelialiilitj-  cliiiisc,  larfrcly  oneni'  ])roc'e<lur('. 
waB  a  liijrhly  inipditimt  rcfoim,  tlic  nei-il  lur  which  liatl  ht-cii  well 
taiiiriit  liy  flie  faiiiirf  of  the  llaiiiv  ol  Upper  Canada.  I'mU'r  the 
aniendeil  law  it  hccainc  possililc^  iniinediatciy  to  enforce  the  liahiiity 
of  Kiiareiioiiiers,  and  jironiptly  to  pay  off  liie  del)t.s  ot  tiie  hankn. 
The  hardship  of  waiting  for  dividends  hail  formerly  opi)ressed  the 
hank's  creditors;  it  was  now  justly  transferred  tc  the  hank's  jiro- 
jirietors.) 

(/.)  rpon  shares  the  transfer  of  wliich  shall  have  lieen  registered 
within  a  month  of  the  hank's  sus))ension  of  payment,  tlie  liahility 
of  the  transferors,  saving  tlieir  recoiirst'  a^rainst  the  transferees, 
Bhall  continue  as  if  the  shares  had  not  l)een  transferred.  Iiirectors 
refusing!  to  make  and  enforce  calls  or  to  c(incnr  in  such  action,  sliall 
he  {.'uilty  of  a  misdemeanor  and  i>ersonally  lialile  tor  diima^res 
sulTered  hy  their  default. 

(I)  The  hank  shall  lie  suliject  to  any  jieneral  windin<:  up  hy  act 
passed  hy  rarliament. 

(m)  Kach  shareiiolder  shall  have,  whenever  shareholders'  votes 
are  taken,  one  vote  for  each  siiare  held  l)y  him  durin^j  the  |)revious 
three  m<uiths.  No  person  not  a  shareholder  shall  act  as  proxy,  and 
no  hank  emph»ye  shall  liold  jjroxies  or  vote  in  person  or  hy  proxy. 

(//)  The  shareholders  shall  have  jiower  to  re^ilate.  hy  hy-law, 
matters  incident  to  thr  nianaj;ement  and  administration  of  the  hank, 
hut  the  dii-ectors  shall  not  he  less  than  (ive,  or  hold  in  tlie  ajf^rrefjate 
less  than  1  per  cent  of  the  paid-up  stock.  They  shall  he  elected 
annually  hy  shareholilers,  and  heelijjihle  for  re-election,  and  the 
discounts  or  advances  to  any  ilirector,  or  firm  of  which  the  director 
is  a  partnei-,  shall  not  exceed  one-twentieth  of  the  total  discounts 
of  the  hank  at  the  same  time. 

(o)  Certided  lists  of  shareholders,  the  stock  respectively  held  hy 
them,  and  their  residences,  shall  he  transmitted  to  the  Minister  of 
Finance  eadi  year  Ijefore  the  day  appointed  for  openin<;  of  Par- 
liament. 

ill)  The  monthly  returns  to  the  government  of  hank's  assets  and 
liahilities  shall  he  mad«  accin'<lin<:  to  an  expamled  and  improved 
form.' 

('/)  The  making  of  willfully  false  statements  in  such  returns  shall 
he  a  misd(!meanor,  and  hank  otFicers  sijininf:,  apjiniving  <u- concur- 
ring therein,  witli  intent  to  deceive  any  person,  shall  he  responsihie 
for  damages  sustained  liy  him  in  coiise(|ii('nc(>. 

(;■)  (living  iiufair  preference  to  any  creditor  shall  he  a  misde- 
meanor on  tin-  piart  of  an  ollicer  of  the  hank. 

is)  The  charter  of  the  hank  shall  run  to  the  end  of  the  se.«sion  of 
Parliament  next  after  the  lirst  of  .lanuarv,  Issj,  and  no  longer. 

'Tlic  turtii  of  tlirsc  ritiiriis  uppeur!'  Ill  Appemli.v  I. 


hi   I 


Thr  "Act  /kcspecfiii;/  /J(i)iL<i  (Did  li(inhi)i;i,''  18T0 


Tlu'  directors  of  any  (*xistin<>^  bank  were  permitted, 
on  authority  of  the  shareliohh'rs  ^iven  in  <jfenerai 
ineetinji^.  to  ajtjtly  for  an  extension  of  its  charter  with 
ainendnifuts  suhjectin^'  the  hank  to  tiie  first  ei<;l»teen 
restrictions  outlined  above.  Tiie  ( Ji>vernor-in-('ouneil 
was  (  niiioweit'd,  upon  favovabh' I'eporl  of  tiie  ^linister 
of  .lustiee  and  tlie  Treasury  I'ward.  to  continue  the 
aniendod  ciiartei'.  by  letters  patent,  from  tiie  date 
of  its  expiry  to  the  established  date  in  IS8I.  The 
charter  was  to  take  effect  either  from  the  date  of  its 
fxpiry.  (>i-.  the  shai'ehohhrs  consenting',  fi'om  any 
eaf'ier  time  tixe»l  for  its  cdinmenceinent.  If  it  were 
she  vn.  at  the  time  ot'  the  application  foi'  the  renewal, 
that  the  cajjital  stock  of  the  bank  was  impaii'etl.  the 
(lovernor-in-Cdiincil  ini^lit  permit  a  recluction.  not 
to  exceed  •.'.-»  pel"  cent,  of  the  amount  i>aid-up.  and 
not  to  reduce  that  amount  btdow  st>0().(MtO.  This 
re^nilat  ioi.,  apparently  a  i-eminisceiiee  of  the  free 
banking'  wiiich  In.'  >uppoited  twenty  years  before, 
was  a  part  of  his  p(tlic\  specially  favored  by  the 
Minister.  He  insisted  upon  it  as  essential  to  his 
banking'  measures,  and  also  wished  to  jirovide  for 
yrantiii;;-  new  chaiters  by  U  tters  jiatent.  Ibit  I'ar- 
liameiit  Would  not  consent  thus  to  strip  itself  of 
jurisdiction  in  the  matter. 

'I'lie  monopoly  id"  issuing  notes  for  circulation  was 
assure<l  t«  'h^-  banks  by  imposing  on  private  or 
unauthori/.e.l  issue  a  line  of  s4imi.  recov<'rable  with 
costs  in  any  court  havin;^  civil  Jurisdiction,  one  half 
for  the  person  l>ringini;-  suit,  and  one  half  for  the 
publir  uses  of  the  Dominion.  I'lcx  ioiis  le<.jislatioii  in 
conflict  with  the  i)resent  act  was  repealed,  ami  the 
•■Act  respectinj^  Hanks""  of  |S()S  continued  to  the 
end  of  the  session  of  \i<l'2. 
17 


■•  1'.. 


) 


I  I 


i; 


I, 


i  I  :  i  ■    t\ 


t      V 


Mif 


258  The  Canadian  Bankinn  System,  1817-1890 

,^42. — '-THE  ACT  RELATIX(i  TO  BANKS  AND  HANKINC." 
J  871 

The  account  of  Sir  Francis  Hincks"  banking-  policy 
is  incomplete  without  some  reference  to  his  financial 
measures.  He  was  a  Minister  fertile  in  schemes  to 
keep  the  Treasury  full.  One  of  his  measures,  for  the 
passing  of  which  lie  relied,  jjrohably,  more  ujton  a 
disciplined  majority  than  on  the  arguments  advanced 
in  its  behalf,  I  have  already  noticed  in  his  increase  of 
the  Dominion  note  circulation.  The  cognate  i)lan  to 
secure  the  permanent  loan  of  one-half  th(>  cash  I'eserves 
of  the  banks  in  the  Dominion  is  also  familiar.  An- 
other device,  adopted  in  lS7i.  was  the  assumption  of 
the  government  savings  b;inks  establislied  in  the 
maritime  province's  befoi'e  Confederation.  He  further 
provided  foi-  starting  new  offices,  and  for  converting 
savings  bank  deposits  into  five  [lei-  cent,  debentures. 
(;}4  A'ic.  cap.  0.)  Postoftice  savings  banks  had  been 
provide»i  for  under  his  predecessors. 

The  comi)etitiou  of  the  government  savings  banks 
was  a  serious  factor  in  the  general  banking  situation 
for  numy  years.  Tlie  high  inter<'st  (4  to  4]  percent.) 
])aid  on  deposits,  and  the  lack  of  adeijuate  restriction 
on  the  amount  which  individuals  might  deposit,  di- 
verted a  considerable  part  of  the  sums  ordinarily  kept 
by  the  banks  to  the  (diests  of  the  govenunent.  <  )nly 
in  ISSCt  were  precautions  taken  to  correct  these  faults 
and  limit  the  banking  functions  of  the  goveinment 
to  custody  of  the  savings  of  the  jtoor.  ignorant,  and 
those  unable  to  judiie  foi- themselves  as  to  the  security 
of  their  investments. 

By  a  third  scheme,  chartered  savings  banks  were 
now  obliged  to  reorganize  under  general  legislation, 
to  provide  a  comj)ai"at ively  large  j>aid-uj)  capital,  and 


r 


"  The  Aft  /Malivfj  lo  Banks  <in>l  h'(()il-i»f/,"  1870     250 

to  inv<'st  it  in  ^ovcrninont  debeiiturt's.  (:?3  Vic.  cap. 
7.)  Insurance  companies,  both  domestic  and  fori'ifj;n. 
had  been  comitcllcd  in  ISOM  to  maintain  (U'j)osits  with 
the  ^rinistcr  of  Finance.  All  these  nieasures  were 
sup))orted  by  the  ])laiisil>le  jdea  of  ^uardinjjf  tlu^  pub- 
lic intei'est.  but  it  is  not  unlikely  that  they  served 
that  interest  as  much  by  helping-  to  find  the  govern- 
ment of  the  day  with  ample  funds  as  by  protecting 
individuals  fi'om  loss. 

The  last  item  of  the  list,  though  hardly  a  financial 
measure,  is  quite  as  gernume  to  our  subject.  In  a 
statute  of  Iv^^Tl  (:U  Vic.  ca]t.  4).  jirovision  was  made 
for  (<n  expelling  from  the  circulation  the  larg<'  amount 
of  American  silver  by  which  Canada  had  been  flooded 
since  the  suspension  of  specie  jtayments  in  the  United 
States:  (h)  substituting  therefor  the  Canadian  silver 
coinage  in  pieces  of  five,  t<'n.  twenty-five  and  fifty 
cents,  and  cop])"r  coinage  in  pieces  of  oue  cent,  the 
silver  l»t'ing  legal  tender  to  s Id.  and  copper  to  twenty- 
five  cents,  and  [r)  for  establishing  thrinitflioiit  Camtdd 
as  the  eoi  i(>ulsory  money  of  account.  "//  mii/onii  cur- 
venvji  in  i'  <^  denomination  of  dollars,  cents  and  mills. 
at  the  e<  I  ivalence  of  sl<»  Canadian  the  American 
eagle,  coined  since  ISH'J.  and  weighing  1(1  dwts..  IS 
grs.  Tioy.  and  s4.S(ir;  Canadian  the  British  sover- 
eign, the  two  coins  mentioned  and  fractions  thereof 
being  made  a  legal  tender  in  Canada. 

( )n  the  :?d  ^larch.  ISTI.  the  ^linistei-  explained  to 
the  House  of  (Nunmons  that  in  only  one  single  in- 
stance had  a  tdiartei-  been  ren(>wed  according  to  the 
act    of  the  previous  year. 


I>a 


nki' 


he  continued. 


••almost  tmanimously  expressed  themselves  in  favor 
of  having  rarliamentary  charters.  When  this  was 
ascertained,  and  it  was  oidy  quite  recently,  the  (Jov- 


1  ■  ■ '. 


V 

i 


) 


I'. 


:f 


:    I 


!H' 


^ 


.iO 


The  ('aimdiiiii,  llank-iiuj  Si/s/eni,  181T-I8'.i0 


eniint'iit  (letciiniiicd  tluit  tlicy  would  I'lidt'avor  to  vu\- 
l)ody  in  one  ^t'lu'ral  banking  Art.  not  only  the  pio- 
visions  of  tlu'  j)r('vious  Act  of  tlio  last  session,  l.ui 
also  the  j^oneral  provisions  of  what  he  might  term 
the  intei'iuil  regulations  (»f  hanks,  and  which  they 
themselves  seemed  <h'sirous  should  he.  as  neitrly  ;is 
j)()ssihle.  assimilated.  This  wms  the  extent  of  the 
( Jovei-nment's  intentions,  hut  there  seemed  tn  he  a 
very  ;;-eneral  desire  that  in  the  Uank  Act  the  charteis 
siutidd  he  extended  for  ten  years.""' 

The  act  drafted  in  accoi'daiu'e  with  this  imrpose 
was  passed  with  very  sli<;ht  discussi»»n  in  eitlu'r  hi»use. 
and.  on  the  ]4th  April,  i-eceived  the  i-oyal  assent. 
(3-4  \'ic.,  cap.  T). )  This  statute  was  the  first  ^-eneral 
law  untler  which  the  hanks  i-eally  worked,  and  may 
he  reg'ardecl  as  pi-actically  the  tii'st  ISank  Act  of  t he 
Dominion.  Still,  tlu'  measure  of  lS7i>  contained  the 
essence  of  the  ( iovei'nment"s  policy.  \V«'  have  to  note 
one  (dian<;-e  in  the  capital  reiiuirement.  no  new  hank 
heiu}.;'  now  permitte(l  to  issue  notes  or  het;-in  husiness 
with  less  than  s.")(ii). 0(10  capital  hmi'i  lidc  suhscriheil, 
and  sioo.ooo  similarly  paid-up.  'J'he  payment  of  a 
furtlier  sumof  .^loo.OOO  was  reipiii-ed  within  twoyears 


from 


the  1 


•ej^innmg'  of  ousmess. 


An  idea  of  the  com- 


prehensiveness of   the  a(;t   may  he  j^ained   from   tlu' 
titles:  (leneral  lie<;ulations  .:;  ;i  4  to  Ki.  Inti'rnal  liegu- 


lationc 


17   to  '20.  President    and    Directors 


:!o  to 


3S.  Powers  and  Ohiigations  of  the  Hank  (loans,  inter- 
est, advances  on  warehouse  receij)ts.  etc.)  .^  .^  IV.)  to  r)4. 


Hank  Notes.   lioiids.  etc 


.").')  to  oC),  InsolvencN' 


.)  I 


to  .")!).  OU'ences  and  I'enalties  ,^  .^j  (50  to  (»7,  Xotiics  ^;  tV.i. 
Future  Legislation  ^f  ?f  70  to  71,  Special   Provisions  as 
•I'arnaiuentiiry  Dohates,  Canada,  vol.  11,  p.  'Joo. 


''Thr  An'  li>'l,tH)i<i  lo  Hanks  uml  llaiik-iii'i,"  I8T0     -^(51 


•!     I;HII 


til  ctrtiiiii  banks  .i' .:;■  7'J  to  7.').  Ivcpoaliiijjf  luwl  Saving 
( 'laiist's  ,i  .;;■  7<'i  to  77, 

Tilt'  law  as  to  lojuis  on  wardiousc  rccciiits  and 
siniilai-  (locniu<'nts  was  tlioionu'lily  r»'\  isrd.  dillicnl- 
t'u's  of  |iroct'(lurt'  rt'niovrd.  niid  sonic  ainrndnicnts 
addi'(|,  A  coiisiilrralilc  advance  was  made  here  in 
tlie  Icuj  shit  ion  wjiicli  allowed  itanks  tnakinj^;  advances 
t"  take,  iiisteail  of  personal  se<Mirit_\.  the  security  of 
coininoilit ies  stoi-cd  against  the  time  to  market  tliem, 
I'assiiii;-  into,  oiit  iif.  (>!•  tlii'iinyh  Canachi.  i>r  nnder- 
uoinj;"e<invei'sion  from  the  raw  state  in'o  |irodn<'ts  sn(di 
a-;  |iork.  hacon.  hams.  malt.  Ihiur  and  sawn  Inmhcr. 
iiow  important  tiiis  possiltilit y  was,  not  mdy  to  tin' 
d'\  elii|imeiit  and  maintenance  of  i  he  conn  1  ry's  t  I'adc, 
hut  also  to  the  safe  cnndiict  of  hankiiiy.  will  ajipear 
a-  the  i-arefiil  attention  to  the  ••wartdmnse  I'eceipts" 
t'laii-es  and  the  wide  extension  id'  the  nnderlyini^ 
principles,  are  noiic.'d  in  later  pa^'cs. 

It  was  also  declared  t  hat  the  liaid<  mi.nlit  acquire 
and  Imld  a--  collateral  security  for  any  advance, 
••shai'es  in  the  capital  stoek  of  any  other  hank,  the 
lionds  nr  ilelieni  ures  of  munici|ial  or  other  corpora- 
tions, ur  hominioii.  I'roviiicial.  Uritish  or  forci^ji'n 
juihlic  securities."  If  the  ori^'inal  deht  were  not 
|iaid  when  due.  the  liaid<  nnnht  disjiose  of  sindi  col- 
lateral after  thirty  days"  notice  to  the  dehlor. 

A  further  discussion  of  the  statute  is  unnecessary. 
It  Would  III'  tedious  to  r.peal  at  leiiiith  t  he  siihstiiiu'e 
ot'  its  sc\fnty-se\  en  sict  ions,  and  t  weiity-four  octavo 
jian'c^;:  to  amend  the  M  inister"s  descript  imi  of  its  pur- 
jiii^e  Would  lie  dillicult.  .\nd  in  the  md.  we  should 
ha\e  discovered  almost  no  prii\  ision  completely  un- 
familiar, a  lar;^e  part  of  the  act  hein;;-  devoted  to  the 
reenactmeiii    and   consolidation    of    ley:islation    with 


M 


) 


,i 


i  I    ' 


'  ' 


I 


•  H 


-! 


( 


262 


The  Canadian  Banking  Si/sfeni,  1817-1890 


respect  to  hanks  already  in  force.  Aside  from  cer- 
tain technical  amendments  in  1S72,  IS?!},  and  ISTT). 
the  Hank  Act  remained  witliout  cluinfif  until  1S7S>. 

The  acliievement  of  first  hrin^iny  the  Canadian 
hanking  system  into  tlie  form  on  which  hiter  legis- 
lators merely  huilt.  has  frecpiently  heen  ascrihed  to 
Sir  Francis  Hincks.  It  is  true  that  he  propost'd  cer- 
tain reforms  to  Parliament,  that  his  resolutions  were 
adopted  with  little  suhstantial  change,  that  the  act 
of  1871  is  still  the  hasis  of  the  statute  {j^overninj;- 
hanks  and  hanking.  Rut  the  characteristic  i)ro- 
visions  of  the  acts  of  1870  and  1S71  did  not  originate 
with  Sir  Francis  Hincks.  (Mie  of  the  few  features 
for  the  invention  of  which  the  Minister /rf/.s'resi)onsil»le. 
viz.,  the  renewal  of  charters  hy  letters  jjatent.  failed 
within  the  year:  another,  the  reduction  of  the 
mininmm  capital  to  .sl(»(t. ()(»(),  adopted  prohahly  for 
political  I'casons.  was  afterwards  changed,  and  was 
never  found  to  exact  sufficient  cash  guarantee  of  in- 
tention to  carry  out  a  homi  fidr  husiness;  a  third,  the 
power  to  loan  ujton  stock  of  other  hanks,  was  proved 
pernicious  in  less  than  three  yeai's.  and  was  repealed 
in  less  than  eight.  The  hank  reforms  of  practical 
value  which  he  introduced,  had  all  heen  suggested 
and  justified  hy  hankers,  investors  in  hanks,  and 
husiness  men.  some  one.  some  tw(».  and  some  eleven 
years  hefore  they  were  adojtted  hy  tln'  (jlovcrnment. 
To  unify  the  hanking  system,  the  ^linister  extended 
the  law  of  old  Canada  to  the  provinces  of  Nova 
Scotia  and  New  Brunswick;  to  reform  it,  he  fol- 
lowed, not  origiiuil  schemes  of  his  own.  hut  the  sug- 
gestions of  the  hankers  called  in  consultation.  Yet 
the  hanking  policy  of  their  successor  formed  a  dis- 
tinguished and  admirahle  contrast  to   ]\rr.  (Jalt's  in- 


''The  Ad  Rehding  to  Banks  and  IJankinf/,"  1870     263 

jurious  attempt  to  t'stablish  a  currency  of  y;overn 
ment  paper,  and  to  Mr.  Rose's  effort  to  revolutionize 
the  system  of  bank  note  issue.  They  wished  to  re- 
model it  according  to  personal  hobbies:  he  allowed 
the  Canadian  banking  system  to  keep  to  tli:'  natural 
lines  of  its  ^n-owth.  Of  the  wisdom  of  his  decision, 
each  year  of  the  twenty-three  since  elapsed  has 
afforded  new  and  stronger  proof. 


i 


J 

N .  'I 

■  'i. 
,  .  ( 


1-^ 


\ ... 


Ik 


:'    it 


'  1- 

1 

i 

1  . 

1 

;,u| 
dim 

I   ' 


\\\\ 


t::l 


(HAITI-:  I J    VIII 


HAXKIX(J    I'XDKK    THK  (M  )NKKI)KI{ATI(>N, 

hsr)7-IS8'.i 

,^i;{.       TIIK  KXl'ANSKtN    IIKI'W  KKN    iSCiT    AND    ISTI^ 

TiiK  ('coiioiiiic  liistory  of  ("iuia<l;i   since  tin.'  Cont'cd 
eriitidii  of  tile  |ii'o\  iiuH's  i»rcs»'Mts  several  \vell-»leMiieil 
periods,   of    wliich    the    first  iuchides    LsCt.S- KS7:>.    the 
second    IS74-1S7'.>.   and   the  third    extends    from    the 


aiitnuni  of   IS7!>  to  nearh    the    clo-^e  of    is.^; 


Th 


most    interest injj;  of   tlie  thi'ee.  pi'oljahl.v.  is  the  first. 


hnt  even  a  cursory  de>cri| 


in  Would  need  the  whole 


of  a  separate  paper  :  to  mention  a  few  of  the  )»he. 
nomena.  and  some  of  the  general  results,  is  all  that 
res]»cct  for  the  limits  (d'  the  present  essay  will  per- 
mit.' The  period  was  on<'  of  <;rowth.  ^leat  ajiparenf 
prosperity  and  «;('nei-al  expansion.  Thus,  llie  total 
<loht  of  the  hominion  was  increased  from  siKi.ddO.OOO. 
in  L^t;7  to  sl-U.Otio.dOci  on  the  :!(tth  .lune  1S7-1  ;  the 
net  interest  char<;-e  rose  from  s-l.iido.ooo  to  s;».  |(Mi,ddd. 
The  receipts  of  the  Ti'easuiy  rose  from  slo.tidd.diK)  to 
!i;*i4.*Jdd.(idd.  and  the  exjjenditure  in  similar  ratio.  Fif- 
teen and  a-half  millions  of  dollai-s  were  sjient  upon  the 
Intercolonial  Itailway.  one  million  and  a  half  on  the 
canals,  a   million  on   the  (-anadian    I'acitic   IJailway. 

It   iiiij:lit   well   lie  clcsin'il   ili;it  .'^iiiiit'  aci'i'iiiit  (if  llir  ciiiiiiiitTriiU 
trriiw  til  and  t'coiiiiiiiic  il<'\  t'lc)|itii('iit  nf  I'ltitisli  .Ndrtli   Aincrira  were 


availal' 


.\   iimst  caiefiil  scaicii   liaH  rovfaU'd  iid  smcIi 


it  is  iiii|iii--sil)li'  to  ii'for  the  reaiU-r  U>  a  I'liin ciiit'iit  aiiil  full  disi'ii.s- 
sion  of  ijiR'-stidiis  wliicii  can  barely  l)e  toiiclieil  heie. 


'/'//'■  Hrjufiixioh  /.rfii'c^n  18G7    "x/  !8T;J  -jeri 

'l"\vrl\  (•  iiiillidMs  nf  tlic  th'ht  increase  w  .t*-  in  Dominion 
n<it«'s.  the  .iiciilalion  of  wliioli  was  (|ua(lrni>ltMl  t'loni 
l.'^CtT  to  IST-I.  'I'lic  total  <'.\|)oits  of  tin-  country. 
s.'iT. ()(!(». (Mi(»  in  ISCS,  Wert"  sj^i).(KK).(»(io  In  1S74  :  the 
iniji'Tts.  sTiJ.ddU.fKM)  in  ISCS.  wti-c  sl'JS.ood.oon  jn 
I^T^i-t.  Kxtcnsioii  ot'  tiic  railway  system  was  bc^uii 
in  IS7I  :  l>y  \>'!^>  the  mileage  w;is  douMc*!.  hciti^- 
4.S-'('i  mile-  as  a;:aiiist  •i.4'.i7  in  |S7<i.  Tlif  li^^nrcs 
scrvf  to  iuth  -atf  what  otiicr  ex  idmcc  pi-ovcs  to  Iiuni- 
lit  ell  t  rue. 

Tilt  If  was  heavy  immi;4"rat  ion  into  tlif  country. 
Till'  area  ot"  settlement  was  cxtcntlcil.  In  thf  west, 
thf  new  jtrovincc  of  Manitoha  was  eslalilisheil.  The 
sn|i|ily  of  ayricnit nral  ]tid(iuce  was  nnn-h  inci'eascd. 
and  a  iiowcrl'nl  im|iftu>  ^ivcn  tt)  the  hnsincss  in  pro- 
duct'. Unihlin;;'  o|ici'at  ions  in  ('aiiatia  an<l  the  I'nited 
States,  and  the  i^apiil  ailditions  tt>  the  rnilway  system 
in  hoth  countries,  raised  the  |iri(  e  (d"  Inmher.  With 
the  increase  of  other  ftireij^n  demautls.  they  stimu- 
latetl  the  lindter  trade,  ami  caused  ahuttrmal  inflation. 
The  s|ieciil;it  ion  eXteUiletl  to  timhered  lands  ;iml  tim- 
hi  r  linnts.  All  sorts  id'  mamifact  ui  >■  were  jiushed  to 
liountls.  whitdi.  in  IS?.'".  \\  t  ic  ;ieknow|ed<^-e(l  to  have 
been  unreasonalile.'  M  uiiicipalit  its  of  cvci-y  ^raile 
cauylit  the  infection  and  ailopteil  the  pernicious 
system   id'   urautiuj;'   iionuses   to   niannfact  ui'iu;^' coin- 

pauies  proposin;^-  to  es|;ihlish  themselves  ill  thedis- 
ll-ict    '  d"  t  lie  er;iiitor>.       The   whole  series  of  \  ears   Wiis 

marketl  hy  i;fiier;il  uiowt  h  of  commercial  operations, 
expansion    of    ci'edit    in    its    vniious  forms,  and  larj;-e 

'  7''(i  M  iilar;/  ruiii".  tlif  I'Diitt'inporiU'v  iicwspaiu'i's,  utht'i  linan- 
(■i;il  ;uiii  III  ni'tiiiy  pnlilirutiimH,  ainl  tlu'  stiitistirs  pifparcil  fur  thr 
Duiiiininii  urn\  t'rniiH'iU,  ;ue  the  I'liiet'  soiiici's  tur  tlu'  fact.s  nf  tliis 

pt'rinil. 


fi^if 


} ., 


...  If 


fl 


fj 


J 


=f,i 


i:ij 


h 


r 

if 


H 


I 


J6G 


The  Cinintliiin  /linikin;/  Si/sfeui,  1817-1890 


additions  to  the  <-liiss  of  siiiiill  shop-keepers  doin^ 
business  on  lonj;  time.  Except  wliere  iclated  to 
tinilief  |»rodiietion.  the  vahies  of  real  estate  were 
niueli    h'ss  atVeetrd   l»y   the   upward   movement    than 


other  investments. 


The  time   is   l»est     deserilx'd    as 


one  <»f  increased  activity  in  manufacture,  transpor 


tation  and  exchange 


Tl 


le    ;;reat    hiinl    l)oom 


luid 


occurred  in  IS,")?  and  pri'cedin^  years. 

The  hanks,  it  may  lie  expected,  shared  in  this  ex- 
pansion. Krom  May.  iSCdS.  to  .luiu'.  1S74.  twenty- 
eit;ht  new  charters  were  j^ranted  hy  the  l)omini<»n 
I'arliamenl,  the  record  for  each  session  heiiit;-  as  fol- 
lows: IS()Sone.  If^CDtwo,  1871  four,  iST'Jten.  iJSTMnine. 
IS74  two.'  After  |S7<>  the  charters  nsujilly  provided 
that  if  slO(t, ()()(>  of  the  new  liank's  capital  wore  not 
paid  into  some  »'xistin^"  chartered  hank  and  the  fact 
certified  to  within  one  year  from  the  (late  »d'  incorpo- 
ration, the  chartei'  should  he  forfeit«'d  for  non-user. 
Provision.s  as  to  the  payment  t»f  an  additional  .^I0<>.- 
(»(K»  varied,  tlie  term  hein^-  fixed  at  from  one  t<»  three 
years  after  the  het^inninj;"  of  husiness.  In  four  cases 
the  time  for  conunenciu^"  operations  was  exten<led  to 
the  end  of  the  second  year.  The  work  (»f  foundin<;' 
a  hank  was  hy  no  means  linished  by  the  passing  of 
the  act  of  incorporation,  and  some  of  the  charters 
were  forfeited.  Nevertheless,  nineteen  new  hanks 
came  into  existence  and  entered  the  competition  for 
Canadian  husiness  before  the  end  of  1S74.  hut  only 
nine  of  these  weie  nuikinj:;  returns  to  the  government 
by  the  end  of  June.  1S7;{.  The  Ooimnerciiil  liank  of 
New  Brunswick,  the  Commercial  Bank  of  Canada, 
the  Gore  Bank  and  the  Merchants'  Bank  (acting  under 
a  Nova  Scotian   charter  in    li'^(57),  whose  combined 

'See  note  1,  next  paj^e. 


Tlir  /•'.r/)iiusinn  hrfirrrn  18^7  loid  187:J 


887 


capital  ill  1807  was  a  littlo  over  ijsC.JOO.dOO,  lia<l   d 
apftcai'i'd  trcmi  the  rctmii.     So  tlir  total   iHmil»  r 


is- 

of 


'TlieHo  were  uh  follows: 


sitcnr  ri'iiK'iiuii 


3l'. 


IRtis  Hank  of  A^rrifiiltiiri'  ' . . .  Ilainilton,  Out. 
l.se.it  The  McrcliantH'  Maiik  of 

Halifax Halifax.  N.  S. 

"     Tlu'  Doiiiiiiioti   Hank  ...  Toronto,  Ont. 
1871  The  ^fetropolilan  Hank.  Montreal,  line. 
'•     The     Hedfor.l      l»i.strict 

Bank' AVaterloo,  Que. 

"     '{'he  Western  Miiiik' Yarnionth,  N.  ,<. 

The  liank  of  Liverpool. ..Liverpool,  N.  h. 
ISTTTT^e^Kxchanne  Hank  of 

Canada Montreal,  Que.  ">•" 

"     Hftmitie  Ville  Marie Montreal,  (^ue.  llf) 

"    The  St.  I^awrenee  Hunk. Toronto,  Ont.  ;i'> 

"     The  Hank  of  Hamilton. .  Hamilton,  <  >nl.  '■'•'^ 

"     rii«>  Halifax  HankinK< '(>.  Halifax,  N.  S.  :;.'> 

"     'l"he  Hank  of  .Vcadia  ....  Liverpool,  N.  S.  :;."i 

•'     The  Hank  of  .<t.  John'.. St.. John.  N.  H.  IL". 

"    The   >Liritinie  Bank  of 

the  Doniin'n  of  Canada. St.  .Itdiii,  N.  H,  :;"> 

■'     The   Snperior   Hank    of 

Canada Toronto,  Ont.  ;i."i 

"     Tiie  Hank  of  ^Lmitoha'  .Fort  (iarry,  Man.        :'."• 

187"«  Lu  Hancpio  d'Hochelana.. Montreal,  Que.  :iti 

"     ThcTliree  Uivers  Hank'.Tliree  Hivern,  (^Mie.  '■>>'< 

"     ]a\  l'.an(|nede Saint  Jean. St.  Johns,  Que.  :u> 

■'    The  Stadaeona  Hank Statlaron:i,  (2ue.  :'ii'> 

"     Tlie  Inii)erial  Hank Toronto,  Ont.  :'.(> 

"    The    Victoria    I'.ank   of 

Canada' Montreal,  Que.  '■'•*'< 

"     I'lctou  Hank I'icton,  N.  S.  :;ii 

■'     La  Hanijue  de  f^t.    Hya- 

einthe "^t.  IFyaeintlie,  Que.   '■'<*> 

"     The    Central     llank    of 

Canada' ^lontreal.  Que.  :'.ii 

Is74  The  London  and  Canada 

l?ank» Toronto,  Ont.  :17 

"    Tiie  Hank  of  Ottawa Ottawa,  Ont.  :;7 

'  Churtor  forfeited  for  non-user. 


.\(t  (.1 
liii'<ii'|iiirii(|iiii 


;i     vii 


ra|« 


:;'.• 

Ill 
41 
4  J 

4tt 
51 
.'C 
41' 

.•.♦ 
.").") 

.Mi 

."iS 

.V.t 
till 

i:; 

14 
!.■. 

—  •» 

I  •» 

74 


7ii 


7s 

.">li 


'     1.1 


;    1' 


I'll 


III     ' 


268 


Till'  C(()i(t(/i((H  I  lank-inn  Si/s/rm,  1817-1890 


banks    in   llic   foni-  jn'ovinces.  Jictint;;  undrr  cluirtcr. 

;q)|t('iii»'(l  in  tin-    liank   Statement   for  .Inne.    I'^TM.  us 

tliirty-tliree,  a  net  increase  of  five  sinee  Jnne.  I  SOT. 

T\\r   totals  of  tile    varions    items    incliulcfl    in    the 

retuin    were  ;is   foilow.s: 

1. 1  \  III  III  I  IS  iiiitli  J  line,  Isr,;  mull  .liiiif,  ls::i 

I 

N'limlici' of  liariks  ill  (ipeiMtii'ii I'S           I          ;'.."i 

<'a|iitiil  aiitliiiri/cl ftll.Tdd.ctit; 

('!i|iiial   pMiil-ii]. <i:iL','i(Ki, |ii_'      .V),Hi-.>.!t.vi 

Proiiii'SDiv  notes  ill  ciniilatiiiii Kijn;.',  (,;!(      L'l,!i."iti,(i|i; 

l)iu'  to  otlicr  hanks  in  Canaita )  I.sii7,|n| 

I)iif   to   ntiicr   liani<s  or   ajrt-nts  not    in  .-  -,!'sl,:ill 

Canaila )  '.',  I!tr,,!ii;!i 

(i()\iiiinieiil    ilcposits     |iayalilt'  on    ilc 


I 
Other  ih'pc'sits  payahlu  on  ih'iiiand i 


man 


\ 


1 1,; i: :."..•.' I : 


(iovcinnit']  t      (h'posits 

iiotirc 
Oth.T  .h 


avalih'    after 


iiosils  payal 


if  after  iiotici' * 


l.ialiilif ics  not  inciinlcd 


Total  lialiiiit  ics  to  the  pniiiic 


ilh'.l^ 


il.n7),:;ii; 

I.IM.ni: 

:.'),sit(),.'i:;i 

:'.|!t,s-_'l 


IIS.LVMi.C. 


!    M 


Assl-Ts 


isii; 


Spenc 

I'rovinciai  or  Itominion  notes. 


Notes  of  aiul  eheoues  on  otlier  hank;- 


liiiianers 
<'iina(la. 


.li 


'I 
froii 


ither     hanks    in 


r.aiances    ilne     from     other    lianii.s    or 


agents  nt)t  in  ("anaii; 


<  iovermiient  ih'hentmes  or  stock.. 
l<oans  to  thi'  <  iovernnic'iit 


oans,  etc.,  to  corporations 


Notes  ami  hills  <lis 
Notes   ami    oveiihi' 


inteil  ami  current . .  . 
lehts    not   specially 


secure 


Overdue  dehts  seciired 

i.'eal  estate  other  than  hank  premises.,  t 
i'.ank 


ireiiuses 


\ 


Other  assets  not  in<'liii!cd  ahnve. 


JS.-JI  III,  •_'•_'!  I 
1  .stiu.o.'ij 


it.Mt!',! 


!rti,SL'!t.-.'Jtl 


.s, :;.):; 


•_MKI 


1. Ill's, -'I'.' 

•J.iils.irjl  I 


I,"i71,"i.">(i 


(M.I.,  ■'•jn 


II,S7'.»,IUI 

I, :■.:'!, 71)1 

Hi7..sti!» 

•.M:;i,7ln 

1--M,'.i77,7".l 

l.L'lL'.SH: 

!.l.'".i,s,:',."i(i 

'r.i.sii 

L'.lsi.  7.SH 


'i'otal 


f  SI  1.7 


,s.".l  *|i'pS,.")l!i.7ii; 


■rin>i  item  III  ]x>i',  Is  cliisseil  IIS      l>e|i(isits  mil  lieiiriiiM:  iiilerol. 


Ill  In-,' 


Depiisiis  lieiiriMu'  interest 


Owinn    'i'    ilii'ciiii|ileleness    ill    the    leMini  iifllle   iiS'i'lsiif   one  of  '  ,ie  Novii 
Si'eiiii  ban  Us,  llie  lijrures  iindei-  this  liemi  tor  I.mi;  me  ;i|i|ire\iiniile  iiieieiy 


Thv  Krjxiusiai/  hdirrvn  18G7  '///'/  18?;} 


•.'6  It 


About  }]<:}( 54. 000  of  the  (Jorc  Bank's  capital  was 
written  off  wlicii  it  (lisai>|tfarr<l  from  i)iisiiirss.  and 
two-tliii'ds  of  tlie  capital  nf  the  ( 'oiiiiuf  rcial  Uaiik.  If 
this  is  added  lo  the  capital  of  t he  ( 'niiMiirrcial  Hank 
of  New  l^rnnswick.  the  sum  of. •-;;!.(;:{(  i.C.CC,  js  dI  it  a  in(il  as 
t  he  f^i'tiss  rednct  ion  n'i  iiankinj;'  capital  hetweeii  |n<',7 
and  ISTU.  The  j;rnss  increase,  liier-l'iire.  will  l)es."..'i.. 
I (»*J.1>.")1>  paid-up  capital  on  the  ijotli  .hiiie.  |S7:?.  less 
!?:{-i..")(M».  I (')•.>.  the  like  total  in  Isf-T.  plus  s:',. (;;!(), (Kii;.  i.r 
^•J0.'JM!{.40:!.  an  in»  !'ease  of  over  so.7  I  percent.  More 
than  lifteeu  million  dollars  of  this  jiu  rease  were  con- 
trihnted  hy  the  siiareliolders  of  the  I'.ank  of  .Mon- 
treal. th»'  Merchants"  liank  of  Canada,  and  the  ('ana- 
<lian  J^ank  of  C'oniniejce.  in  nearly  e(pial  pro|iorlious. 
'rin-  reiiuiinin^'  eleven  millions  were  added  to  the  cap- 
itals of  twenty  other  hanks,  in  amounts  i-auj^ini;-  from 
^70.0(1(1  lo  s|,i;{(). (Mid.  'I'iie  increases  (d'  over  a  mil- 
lion dollars  were  those  of  the  l{o\al  Canadian  I'.ank 
and  tlu'  rui<ui  I'.ank.  while  the  (,>u(diec  I5ank.  Mol- 
sons'  I'.ank.  Bank  of  Toronto.  <»ntario  Bank,  l'.am|ue 
Xationale.  BancpU'  .lac(pu's  Carlier.  Merchants"  I'.ank 
of  Halifax,  ami  the  Bank  id"  .New  lirunswiek  eaili 
added  s40(i,<»0(i  or  inm-e  to  its  stock. 

Tlu'  (•(•mpetition  between  the  ambitious  and  eutei- 
jirisiii'*;-  ;^entleinen  who  j^imrded  ihc  three  larj^er 
banks.  Mr.  \'\.  H.  Kin^-.  Sir  ilu;^h  .\llan.  and  tln' 
lion.  William  .McMaster.  respect  ivcdy.  did  not  end 
bef(M'e  the  capital  of  the  I'.ank  of  Moutieal  wa> 
brou^dit  to  an  even  srj.dOd.doo.  that  (d'  the  Mer- 
(duints"  to  Sit. 000. Odd.'  ami  thai  (d"  the    I'.ank  of  Com 

nUTce  to  SC). 000. Odd.       Kven  then  they   st  rove    each    to 

accumulate  tin-  lar^ei    rest.     The  Bank  of  Mont  re;il. 


: 


) 


i; 


■»  J 


'$4!ts,<i.'>((  (if  this  wore  imi  puid  ii|..     'I'lio  lapitiil  of  the  hank   lui.- 
since  liecii  rt'iiiu't'il  and  if  nowJiti.OiMi.otio. 


\-    :t 


PI 


!i 


ti 


»    I 


N 


i  j 


270  The  Canoilian  Jitinkiiif/  i!>'i/sfe»i.  1817-1890 

liowmMT.  liiul  at  tlu>  start  an  advantajj^o  of  almost 
six  millions  mon'  capital,  and  llu-  managcMMit  of 
tli«'  };ov»'ninw'nt  acrount:  it  was  novor  ovcitakt'n. 
nuicli  l«'ss  ontslrij»i»(Ml.  I»y  its   rivals. 

Xalur-ally.  with  so  nianv  hanks  yet  to  he  opciuMJ. 
the  increase  of  capital  did  not  stop  with  the  (K.ic  in 
IS7:?  i!t  which  I  have  chosen  to  consider  it.  Nearly 
the  lii^hest  point  readied  hetweon  IS'Oand  ISDO.  was 
in  ,)nne.  ISTCk  when  the  olTicial  retnrn  for  forty-one 
itanks  showed  the  t(»tal  paid  up  capital  tit  Ix'  S<i7.  Ill'.l. 


< ».")  1 


The  most  of  this  extension    was   undonhtediv 


;;ennine.      N'et  hanks  were  empowered  hy  the  act   of 
IS7I  io  loan  npoii  shares  of  the  capital  of  other  char- 


tere<|  ha 


Ilk: 


(Ml     Decemher    'A\,    IS7:?.  .s:}.80(l.()(Mt   of 


loans   Were  secured  hy  such  siiares.  the  aj^j^'rey'ate  of 
hankiii)^'  capital  then  hein^  almost  sixty  million  dol- 


ars:  ( 


111  the  same  date   .d'    1S7.").  s."). :{()(). (MXi  of  loans 


on   l)aiik    shar* 


s    were   current,    total    capital    i»ein};' 


then  sixty-three  niillicui  dollars.  To  the  ext(>nt  of 
siiidi  loans,  and  nl  ;i  ;^ood  part  id'  the  loans  H;raiited 
liy  the  several  hanks  to  their  »•  au  stocdvholdei's  (iin 
item,  however,  which  does  not  >pear  in  t  Ik- ret  urn), 
these  adilit  ions  tt»  capital  were  practically'  liclitious. 
And  to  that  extent,  too.  the  h.tnks  wei-e  trading-  on 
lictitioiis  capital,  a  ju-actice  the  faults  of  whicii  are 
too  ohvious  to  ret|uire  explanation.  Speculation  in 
hunk  stock  was  promoted,  a    lai'y<'    hiisiness  on  mar- 


gins  (h'velo|)et 


ami 


ill    the    end.    widespread     and 


heavy    losses  caused   anioiii;'   the   participants. 

I'.iit  fioui  the  mass  td'  evidence  oxamineil.  I  cannot 

conclude  that  a  j^reater  jiart  in  furtheriiij^' t he  expan- 

si.ui    of   the    period    must  he   altrihiited  to  the    hanks 

than  to  any  ot her  important    inemheis   id  theor^ani- 

'Siatistifiil  Year  I'xiok  (if  Caiiaila.  |s'.':„',  p.  oli;. 


The  /■:.>•/)» nsiDU  Murrn  18G7  <ni(l  187:{ 


I'U 


zatitui  d!"  piitdiu'tion  and  exchange.     Tlic  (•niiiinor.'c 
of  Canada  was  under  the  iiiHuence  of  nnich  the  same 
tendencies  as  were  aelinj^f  throuyliout   the    civihzed 
world:  the    I'eturns    sh(»w    that    the    banks  followed 
rathti-  than  stimulated  the  ujiward  mov«'ment.     The 
nunih«r  and  extent  of    the    simpler    «'X(han^('s    in 
creased  l»y  reason  of  the^i-owth  of  population,  higher 
wag'es.   and   j^i'eatei-    activity    in   retail    trad*-.     The 
hank  note  ciiculation.  wherewith  they  w<'re  affected, 
also  rose,  as  our  comparison  sh(»ws.  from  sjojoo.ooo 
to  s-i4.lMK>.(i(M»  on  the   :{»th  .June.  lS7:i.     Six   months 
later  it    was  $5'Jl), (»)('), ().')l).     The   new  commeicial  en- 
terprises, the  ji^reater  ojierations  in  produce,   the  pro- 
cesses (»f  railway  construction,  and  the  swollen   vol- 
ume (if  }^«'neial    business,  caused  a  new  demand  for 
loanable  cupital.      The    rate  of  interest   r<»se.      The 
banks  supplied  the  need  by  expandinjjf  their  discounts 
and  other  ("anadinii  loans  from  s(»me  >>r)4. ()<•(>.(»)()  in 
.lune.  ISC.T.  to  sI'iT. <»()(!. (MM)  iu  June.  1S(;:{.  ami  s|.")7.- 
(»(>(>. (Mio  on  the  :ilst    December.    1S74.  an    incn-ase  be- 
tween   the    extreme    dates    of    .s|():{.(i(K).()()0.       Only 
slS.(HK).n()(»  of  this  was  derived  froiu  circulation:  the 
renuiiudei"  from  additions  to  capital,   amounting;'  to 
s:5|  .(>()(). (MiO   and    an    increase  of  deposits  of  all   sorts 
amounting' to  ii^')!. """.'*""•      For  a  moi-e  extended  sta- 
tistical compai'isou.  there    is   no  present  opportunity, 
but  the  figuiu's  alreiidy  (pioted  will  su^y^est  the  con- 
clusion   which   such   a    coiupaiison    would  establish, 
viz.:  that  the  ext«'nsio)i    of   bankiu}^  was  not   out  (d" 
proportion  to  tlu'  ;;i'owth  (»f  export  and  import  trade, 
or  to  the  (levelojtmeiit   of  the   internal   cominei'ce  of 
("inatla.  and   the   means  of   ciuiduclin;;-  it.  or  to  the 
apparent    increase  of  accumulation,  as  indi<'ated   by 
tlu>  total  deposits  in  the  ciwirteri'd  banks. 


;.1 


) 


I 


, 

i 

' 

1 

2ri 


Thr  CuiKii/ioH  li,i„k-ii);i  Si/xtnti,  1817-1800 


,:i44      hKI'UKSSloN.    IS74    IS71> 

'i'l\iit  the  jj^rctwtli  fxliihitcd  in  the  prrccdiii^  sect  ion 
'VMS  ;icc(iiii|)lisli('(l  witlntut  loss  or  cost  to  tlu*  bjuiks. 
is  an  inrtToncf.  |trol»al>ly.  that  no  one  will  make.  Vet 
no  panic,  in  tlic  acccpttMl  sense  of  the  term,  occurred 
in  ('aiKula  in  ISTIJ,  nor  is  it  easy  to  discover  tlie  plie- 
noinenrtn  (lesi<;nate(i  i»y  the  l)roa<h'r  expression  ■•com- 
nier<'ial  crisis."  {{(daxation  fi'oin  the  tense  activity 
of  the  i)recedint;-  period  he;^an  in  the  fail  of  \iM'A.  and 
continued  tiirou;;h  IS7-1.  Thus  the  change  was  grad- 
ual. thoiij.!:h  none  tiie  h'ss  coiuph'te  for  that.  P)efore, 
iiowever.  the  efl'ect  upon  the  hank's  is  discussed,  a  di- 
;^ression  to  certain  hisses  of  an  eaiiier  (hite  nuiy  he 
aUowed. 

IJy  the  ainal;<aination  of  the  ohl  ( •oninu'rcial  Ikmk 
\viti»  tlie  Mercluuits"  liank  of  ('anaihi.  tlie  sliarehold- 
ers  of  tlie  former  i-eceived  al>out  one-third  of  the  par 
value  of  their  paid  up  cai)ital.  Anotlun- of  the  old 
llj)per  Canada  corporations  was  the  (Jorc  Bank.  I's- 
taldished  in  Hamilton  in  IS'.VA.  At  the  time  of  its 
failui-e.  the  Hank  of  rp])er  Canada  had  charge  of  the 
Montreal  account  of  the  (iore  Hank,  an  lowed  itahout 
s7S. ()(»(».  The  hank  was  eml)arrassed  in  the  lU'Xt  year 
i>y  the  failure  of  tlu'  Commercial  Hank,  to  whi(di  the 
M(tntreal  account  had  heeii  transfei-red.  Then  a  com- 
mittee of  stockholders  reported  that  three  of  the  aj^en- 
cies  should  he  (dosed,  that  another  was  loaded  with 
had  dehts.  and  that  its  funds  had  heen  misapi)lie<l  hy 
the  mana.u'er.  The  system  of  inspecting"  the  aj^encies 
was  neither  eflicient  nor  roy^ular.  'i'he  staff  was 
needlessly  large.  Heavy  losses  incurred  long  prr- 
viously  (principally  jifter  the  collaps*'  of  iS.*)7).  had 
never  heen  written  ofT.  The  dejiosits  of  the  city  of 
Hamilton    weri'   withdrawn,    and   though   they    weie 


'}  '      ! 


nepreiision,  1874-18:9 


:  1.) 


uftorwiirds  rcstoi'cd.  tlic  action  injiii'cd  tlic  l);uik. 
'IMic  fears  of  tlic  public  were  andiscd,  and  a  heavy 
drain  started  upon  the  hank's  iiahilities.  iSetwceu 
,Iun<'.  IS()T.  and  June,  1S()S.  it-;  dejtosits  were  reduced 
hy  s7(»(>.0(i().  its  circulation  hy  over  s:{:{o.(i(i(».  The 
price  of  stock  in  tlie  ( Jore  Hank,  whicli  stood  at  K'Jl 
in  Octoher.  IS(57.  fidl  to  80  in  Decenihei-.  70  in  April, 
(50  in  May.  .")()  in  June,  and  in  ( )ctoher.  iS^iS.  to 
MO  and  M;").  The  Mank  of  Montreal  tenip(»raiily  ad- 
vanced sino.OOO  t(»  help,  and  other  Ontario  hanks 
some  i^ioo.ooo.  This  enabled  the  (iore  l!ank  to 
keej)  on.  in  June.  18(51).  the  reduction  of  its  stock 
in  the  ratio  of  40  tt)  24  was  authoriz<Ml  by  Parliament. 
['.\2  and  '>V,i  Vic.  caj).  54.)  Tlie  bank  was  still  solvent, 
but  i-ather  tluin  continue  the  strujjfj^le  alone,  the  share- 
holders decided  to  accept  for  their  paid-up  stock  in 
the  (Jore  Bank  fifty-tivt'  cents  on  the  dollar  in  shares 
of  the  Hank  of  Connuerce.  then  worth  105".  On  the 
'i7th  AuH;ust,  its  debts  and  property  were  taken  over 
by  the  Canadian  Bunk  of  Connuerce.  Tlu'  old  bank 
was  amalgamated  with  the  new.  and  the  sole  survivor 
of  the  banks  chartered  by  Upper  Canada,  apparently 
doomed  to  perish  like  the  others,  lost  its  identity  and 
separate  existence.' 

Of  the  Commei-ciul  Hank  of  New  Brunswick,  which 
suspended  payment  on  the  lOth  November.  1S(5S.  no 
more  need  be  said  than  that  its  noteholders,  deposit- 
ors, and  other  creditors  were  paid  in  full,  and  a  divi- 
d(!nd  saved  for  the  shareholtU'rs.  The  Westmoreland 
Bank,  another  Xew  Brunswick  concern  which  failed 
about  the  time  of  Confeileration.  was  also  creditablv 


Itll 


) 


KMonftary  TimeK  and   Inxnrance  I'hivnicli',  vol.    ii,    \)\<.    Iii 
3!iS,  -Ifis,  .-.L'.'),  S(i7;  vol.  iii,  p.  Mil. 


18 


i 

, 

1  ?  1 

i 

1 

1 

1 

1 

I 


lin 


1 

I 


I 


:t 


■-.'Tl  7'//''  Ciiiiiiilittn  lliiiihixii  Sjislriii,  IH         1H9<I 

wnuii'l    lip.   tlic   fl(Hil)l«'   lijiltilily  of  the  sluirclioldcrs 

Ix'ili;;-  siKM'cssl'llllv  enrnrfcd. 

In  IS7I  the  lijiiik  ol'  Li vorptiool.  sitiiiitc<l  at  Ijivcr- 
jMinl.  N.  S..  was  cliMitcrcd  liv  tlir  Doiiiiiiioii  I'arlia- 
int'iit.  ;in(l  in  tlic  r<illu\viii;^-  year  tlu-  Hank  of  Acaiiia. 
locatf«l  ill  tln'  saiiif  town.  (I!-I  \'ic..  cap.  I'J:  I!."i  \  ic. 
("111.  .">."").  I  I'.olli  coiicfins  W(  Tf  in\(il\  t'(|  wit  li  a  iSostoii 
tirni  of   latlicr   douliiriil    ciodit.      TIk'  Aiiiriicans  had 

liiki'ii    oni'-fourt  h  of   tiic    LiNcr) I's   stock,  and  oiir- 

ci^hth  of  the  Ac.idia'^.  ;inil  jiaid  lor  it  hy  pidinissory 
iioto.'  In  connect  ion  with  iiiinlMiincn  and  sliip  own- 
ers o|'  lavei|ioo|,  they  ^ot  sonic  ad  v;inces  l»y  ;i  s\  >teiM 
id'  Hint  luii  indoi'seinent.  :inil  other  credit  >  <ni  hills  ol' 
e.\chan;;e  drawn  on  the  .\ineric;in  house  and  supposed 

to  he  co\  ere<|  hy  llimher  shi|illient  s.    i)Ul    lllei    icall}'   hy 

t  he  proceeds  of  •dmihir  new  hills.  The  I'liiids  thus 
ohtililled  were  used  to  ilicre;i>e  the  luillher  plant  of 
the  riiii;'.  riither  tiniii  to  iliscliiii'j^e  their  deht>.  or  to 
pay  fm-tlie  (|uaiitities  of  lnerchalldi^e  purchased  in 
Montreal.  r>oslon  and  Halifax.  Liverpool  and  the 
surr(»iindin>4' coiiiil  ry  enjoyed  a  season  (d'  hi^^h  pros- 
perity, lint  earl\  in  isTo.  aici-ptanccs  id'  the  .\iiier- 
ii'aii  house  Went  to  pi'otest,  the  principal  Lixfrpool 
tirin  succiiinlied.  and  with  it  dran'i^cd  down  the  hanks. 
The  Liscrpool  faileil  on  the  II  t  h  A  pril.  t  he  Acadia, 
after  a  hiisiiiess  life  of  four  months,  on  the  IStli. 
iMin.  Wiinaii  \'  Co.  reported  failures  for  liahilities  of 
s:{.()()(i.()(M)  ill  X(»\a  Scotia  diiriiii;-  ISTI!,  and  the  pros- 
pect that  creditors  \inild  j;'et  lid  to  :>:>  per  cent,  of 
their  (daiiiis.  ( )ne-l  hird  id'  theaiiioiinl  involved  was 
owed  hy  parties    in    the    nei^-lihorhood  of    Liverpool. ■' 

WI'Kit t'lfji  Tiinix  iinJ  Insid-iiifi  C/iriinirlc,  vol.  vi,  p.  !M."i;  vul.  vii, 
!•.  'JL'-J. 

■  ll/i'il.  \(p|.  i\,  |i.  .M'.i. 


Kl 


f)p/>irssin/i,  1874-1870  '■.'75 

'riii'i-f  the  pincli  was  severe,  and  tlie  losses,  cdmitared 
til  tile  resources  of  the  eoimnimit  \ .  Iieavv.  The  liaiik 
of  I,i\ef|iool  iiltimatelv  resuined:  the  I'.aiik  of  Acadia 
iie\er  resumeii  and  paid  alMio>t  none  of  its  (h'l»ls. 
I'lit  its  total  liahilities  at  the  time  id'  snsjiension  were 
only  .'s|(i(;.'.»l4.  and  the  loss  directly  dm'  to  this  hank 
failiiie  was  slight. 

Ueveit in;;  now  to  the  more  "general  as|»ects  of 
Canadian  hankiii;^'.  we  have  to  (diseive.  in  the 
snmnier  of  IS?'.',  a  slii^ht  ^^t  rinLjency  in  the  money 
m;irket.  and  tin'  I'ise  of  the  fate  id'  discount  to  |(» 
iMTd'Hl.  hisconnts.  however.  in<'reasei|.  as  indeed 
they  conlinned  to  increase,  until  tlir  end  of  ISTI. 
The  addition  was  douht  less  jiart  ly  due  lo  the  sjiecu- 
lative  I'tforts  of  ti-aders  in  wool.  |iri>duce,  lund»er  and 
tindicr.  to  hold  tiir  stocks  tliry  had  hou^ht  for  a  rise. 


or 


uiauiil'act  ured    in    lio|ii'   of   lart;i'    |irotits.      A  suh 


<|Ui  lit  inci'i'aso  of  loans  oii  hank  sinek  is  sjniilarly  to 
he  e.\|ilaiMi'd.  liithfiarly  nioiillis  of  j.'sT-!  activity 
siill  |iii-\  aili'.d  in  all  dirrclious.  Uul  h\  March  the 
hanks,  ill  s|iite  of  advancing;'  jiiices.  he^an  tlir  |>o|iey 
of  n-st  rict  ill:;' discounts.  In  May.  the  larL;c  .Ximri- 
can  lunihcr  company  of  |)od;;e  (V  ('oinpaiiy  failed, 
lis  eoiiiiect  ioiis  with  <  'anadian  iioiisis  were  close  and 
maiiv  .  and  iiiimhers  of  operators  in  tiniher  and  sawn 

lunilicr  were    forced    to   the   wall.       The  deep  depression 

ill  products  id'  t  he  ( 'aiiailia  11  forests  dates  fioui  this 
point.  Then  canie  the  American  crisis.  I'.nt  con- 
lid  eiice  in  the  hanks  was  st  ronj^'.  It  was  st  reii^t  heiied 
hy  full  explanation  as  to  their  escape  from  losses  in 
t  he  States,  'i'lie  (  (Uidit  ion  of  ( 'anadian  producers  was 
imjiroved  hy  the  hii;lier  ;^raiii  prices,  due  to  the 
scarcity  in  England.  And.  e.\ceiil  for  a  slight  hut 
ru|»id   decline    in    hank    stocks    in   Septcinher.   and    a 


in 


) 


[I 


H 


I    f 


'  I 


27( 


('> 


The  ('(iniuliuH  Jidnkimj  Sjinlvm,  181|-18'JU 


small  run  on  tw<»  or  three  of  the  hanks,  no  critical 
features  aijpeared  in  the  situation,  and  tlie  country 
escaped  tlie  evils  of  a  hanking  jtanic. 

During  the  next  year  the  hanks  enfoi-ced  the  re- 
strictive policy  with  what  stren^fth  they  could.  The 
uhsolute  increase  in  tln-ir  total  advances  was  due  in 
a  nieasui'e  to  the  necessity  of  supporting  the  opera- 
tions (»f  many  of  theii-  dehtors  until  the  assets  «»f 
these  parties  could  he  hetter  realized.  The  I'eal 
strinj^cncy  did  not  occur  until  .Januai'y  to  March. 
IN?.').  In  these  three  months,  the  deposits  of  hanks 
in  ( )ntario  and  (^uehee  were  reduced  hy  ^^S..'■)(l(t.O((() 
to  s7<t.^!()(i.()()().  and  their  circulation  hy  s:}.'K)o.(H»ii  to 
$21. ")()(>. (MM).  They  met  this  drain  of  .s|'J.r)(i(>.(>(i(i  l)y 
drawin*^  on  Kn>;lish  eorrt-spondents  f<ir  .^n'^, :{()(). (»(><>. 
calling-  in  funds,  (diiefly  from  the  L'nited  States,  for 
$'i, ;")()(>. 00(».  ri'ducing-  their  outstandin}^"  loans  hy 
$2. ;{(»().()()().  and  hy  parting  with  cash  to  the  net 
amount  of  .si ,7<>0.()(»U.  New  stock  for  si^l.lJoo.ood 
was  j>aid  up  during  the  jx'riod.  and  the  lial)ilities  of 
the  larger  to  the  snuillor  hanks,  for  whom  they  were 
agents,  increased  hy  s|  .SOO.OOO.  A  test  no  less 
severe  was  stood  hy  the  hanks  in  ISl):!.  and.  as  i.. 
ISTf),  passed  without  exciting  the  puhlic  or  precipitat- 
ing hank  suspensions. 

Of  commei'cial  failures,  on  the  other  hand,  the 
record  for  IS?.")  shows  an  enormous  increase,  1,1H)S 
as  against  IMJO  in  1S74,  and  1)1)4  in  187-  and  for 
liahilities  of  »;2S..s4;MHt7.  as  against  :t'7.(»l»().7(>."").  and 
$12,'{M4,l!H,  in  the  two  preceding  years.  Tin?  reconl 
for  Ib7<i-7S  is  nearly  as  had.  hut  JiilhJIy  silH^nsts  tjl0 
full  s(>verity  of  ihe  hard  times  lii|ii|m||  \\\\\v\\  tllN 
people  of  the  hominioii  were  passing.'     hi  the  \vhij(((' 

if<Uii  Nutf  I,  next  I'llMH. 


Dfpn'smn,  1874-1879 


•)*"■ 


(•t  iSTCi.  the  (Icpn'ssioM  rciiclicd  wliiit  was.  ]>rul»al»ly. 
the  lowest  (l.'ptlis.  Tlic  cjirryintf  trade  hctwi-fn  lOr- 
ei;^ll  |M»its  liati  fallen  ^\\^'.  and  the  ships  liad  Iieetl 
hrou;;ht  lioine  to  eniiijiete  with  coastili;;'  vessels  tor 
the  diniiiiished  vojimie  of  Canadiaii  trade.  The 
lilinher  and  timi)er  trade  was  siitTeriii;^  fioiri  lessened 
demand  in  Kn^land  and  the  I'nited  States,  from  re- 
duced prices,  and  from  the  increased  competition  (d* 
the  pitxlucts  of  Mi(dii<.;aii  and  Wisconsin  forests. 
Staj;nation  in  the  lundier  tra<Ie  left  many  of  the 
laborers  usually  employed  in  it  without  work. 
Farmers  and  others  whosupplieil  them  were  affected, 
antt  in  ;;reat  sections  of  the  country,  dependent  for 
l>rosj)erity  on  the  lumhei'  luisiuess.  the  stinnilus  to 
active  industry  was  withdrawn. 

The  long  cn^dits.  easily  obtained  from  Mnglish 
houses,  had  inducecl  pei-sons  to  enter  the  wholesale 
business.  ill-e(iui|>j>ed  either  with  capital  or  experi- 
(MU'c.  Imjiorts  were  pur<dmse  I  in  excess  (d"  the  actual 
needs  of  the  country.  To  }4;et  rid  cd"  tliem.  lonj;"  ci-edits 
were  irranted  in  tui'u  to  retailers.     The  wealth  of  tlie 


'I'lie  foUowiii};  is  Dun,  Wiiniin  it  Co.'.s  list  nf  failures  in  <  aiiada 
fur  the  yours  in  ([noHtion: 


Vi;ak 


lS7!t. 

1S7S. 

1S77. 

1.S7«. 
875. 
H7I, 
S7:l. 


Nil.   ol 

KiiCin-f.x 

Ijaliilitit'8 

DIH 

*i  LIU'S, ntir 

lll|-) 

•j:i,  irrj.L'tl:' 

is;  in 

L'."),Mn,ll7 

172S 

L'.">,5|7.!ili| 

|!I(W 

'.N,8|:;,!i(i7 

ill  ill 

7,(i!Mi,7(i:, 

iHlt 

ii.',;;:;i,i!ii 

lljll.-, 

1  *i;ii,7"l, <i(.Ni 

I 


.Uti»rt>U'y   Tniiis,   vol.  xii,  \i    llll'll. 


' 

1 

1 

A 


iM 


,  »■; 


'i 


i  [ 


278  '/'/h'  Citiiiiiiiini  liinik-iHii  Si/.slnii,  ISH-IS'.M) 

country  IkkI  incrciiscd  at  lirst  nut  luui'c  tlian  tivc  |tcr 
fciit.  |H'i'  .-iiiiuiin.  Init  iMi|Mirts  imuit  timti  tliirttrii  |mm 

(Tilt.       'rilc    (-(i||i-|||siiiM     t'l'iiin    t  llis  ilMil   t  !))■  lllMlllill  <lit' 

friTiicf  Itfiwccii  tln'  cxiMiits  mill  iiii|Mirts.  was  tlial 
t  lie  colllil  ly  liail  lmll;;lit  ill  I'Xct-ss  ol'  it-  Jiuwcr  tn  pay. 
'riic  annual  intfrcsl  cliarj^f  ii|miii  thr  |'..ifi;^ii  nnrcaii- 
tilc 


(Ifl)t    aUtiif.  (Iirii  al)t>nt  s<s.(i(mi.(hio,  \va> 


.(Mill 


(>(»(».  .\(l(lf(|  to  tills  Wfi-c  iiayniciiis  iipon  lailway. 
hoiiiiiiioii.  provincial  and  a<>ricnlt iiral  (lclit>  IhIiI 
altioail.  a  total  laiidcn  tliat  .scr\t'(|  sm-cly  to  intensify 
that  iiitrcant  ilc  distress  for  wliicli  tlie  system  ol"  jou^' 
ci'cdits  was  lar;;-ely  respoiisilde 

Siiip-hwildiii;;' ,\n(l  a;;'i'icult  ii re  I'elt  tlie  1  iniiiile-,  in 
less  de;;ree  :  like  tlie  aK'iicnlt iiral  iiiipleineiit  iiidiis. 
try.  tliey  were  comparatively  priis|  croiis.  lion 
mannt'actnicrs  Inst  hy  stoppage  (d'  the  iail\va_\  eiiter- 
jtrise.  and  coai,  cotloii.  salt  and  slate  in  liistries  were 
all  more  or  less  dcpressetl.  the  shrink  i^c  in  their 
business  heiiij;  ]>roport ionate  to  that  in  otiier  lines.' 

Alter  their  experience  early  in  IS7."">.  the  l»i;iiks  had 
tile  (lisaKrccMhle  task  *>i'  appraising-  their  mi-^takes. 
and  rcckoninj;' their  losses  in  the  ••era  id'  reinarkalde 
j>rosperity  "  which  had  heeii  hroiieht  to  a  close, 
("ertain  items  of  their  assets  underwent  strikin*;- 
(dian<;('s.  ••  Notes  and  debts  overdue,  and  not 
specially  secured."  rose  from  sl.lll.-n<'  on  the  :!lst 
Dcccjuher.  IS7",\  to  SI.  i:i(;. (;:!(;  iit  the  end  id'  isT.".. 
•«(>ver(lue  (hdtts,  secui'eil  liy  mort;;a;;'e  or  other  deed 
on  real  estate,  or  hy  deposit  of.  or  lien  on  stock,  or 
bv  other  securities. ■■  rose  fioni  .sj  .I."  .■"».:  {s;,.  ji,  hfccin 


'"IJcpiiri  (pf  llio  St'ltH't  Cuiiiiiiiltci'  (111  tilt'  ( 'aii.st'H  of  tin-  I'ii'm-iiI 
I>t'|>reHsiiin  cjf  tin'  IMiimifacturiiin,  Mining:,  Coinnu'icial,  Stiii'iiiii^r, 
LinnluT,  ami  l-isiiin'/  Iiitorcsts,"  [irinteii  li.v  (udcr  tjf  I'ailiaiiieiit, 
Ottawa,  1^7(1,  .seitious  :i  to  i"). 


I 


Hunk-  /-'iiibtrfM  ,ni</  /.ossrs,  isr4-18',:t  v'T'J 


Ih  r.  Is':!.  t<»  S4.(»."»7..*»'.t|  ill  hrffiulnT.  IS77.  whilr 
••  r^'iil  fstair  (i.iIht  tlijiM  liaiik  |triiiiisi^r'  iiincaxMl 
from  s;..s(;.<»!i(;  m  1S7:!.  tn  sV.:i>:!.-l."  I  ii  iIm- cImsc  of 
In7'.'       ••  Notfs  and  Itills  fliscouiitfil  ami  ciinriii  Z"  on 

tl tli.r  liaiitl.  f.'ll  t'loMi  s|:{'(.:t7l>.-l.*>7   in    I  >.  .riiili.  r. 

1.S7  I.  to  s'.lT.CiOll.Ci.s;-  ill  I  iici  inlpcr,  1^7'.':  fiiciilal  ioii 
fioiii  s-.'.s.4<>a.  I'.fj  to  s!>'.».;{:cj.7(il.  and  all  clasM-,  of 
di|Misits  lioiii  s^ri.t'.ud.oiio  to  s7'.».:i7n.(MMt.  \'\\f 
rfdiKtioii  (tj  di|»osils.  it  will  he  i)li>i'i\  <i|.  wascom- 
|iaiati\(l\  sli;;lit.  tlir  reason.  (1,  coiirsf.  In-inj;-  that 
in  iiard  tiinrs  idl<-  nioiirv  is  plai-fd  w  itli  iiort'  attin- 
tioii  to  tin-  safety  than  the  |iro|it  of  the  inxestnieiit. 
'Die  last  clian;^')-  to  he  noted  is  that  in  paid  ii|)  eapital. 
The  it.  Ml  -^lon.l  ;it  s(5<».,S0(>."J-j;i  oil  :!|>t  |).  .•,  inl.er. 
|S7.')  ;    (oiir   \eai      later   it    h.id    fallen    to  st'".:;,'.  I ..')(»." . 


w 


ithin    sTiiiiJMio    ..f    the   lo\ve>t    jioint    renched    after 


|S71.        All   these  chail-es,   I 

from  the  lahle  ;^iven  in  the  Appendix   I, 


loWe\  er.  are  iiet  ter  st  lldled 


?' 'la.  —  !5.\NK  I'Aii.i  i:i:s  AM'  i<'ssi:s.  lS7f  l^7'.t 

The  red  net  ion  in  the  hankin;;  eapital  of  the  eoinit  r\ 
was  effected  ii\  foiii-  \va\s:  I  the  redncticm  of  cap- 
ital sto(  k  hy  resolution  of  the  sliandiolders  of  the 
hank  under  authority  i^ranted  hy  Parliament  :  II 
the  anial;;;iniat  ion  of  hanks  aecordiii;;  to  special  act 
of  Parliament,  and  reor^ani/at ion  on  a  reduced  cap- 
itali/at ion  :  III  sidiintary  li<|nidation  and  retire- 
ment from  hiisiiiess  :  1  \'  ami  '•ompiilsory  windin;;, 
np. 

I.  (ii)  The  capital  of  La  |>amiiie  ,lac(Hics  ("artier 
was  slU-cessi\  ely  rednced  from  S'i.lMMl.dOd  t(t  sl.iliiii.- 
(Kio  in  IS77.  and  from  s|  .(Mio.oimi  to  s.'jOn.dtKi  in  l^7:i. 
(Pi  \'i<v.  cap.   "la:   A'2    \'ic..    i-ap.    al.)      The    jitdicy    of 


') 


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IMAGE  EVALUATION 
TEST  TARGET  (MT-S) 


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11.25 


I4i  12.8 

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1.6 


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Photographic 

Sciences 
Corporation 


23  WEST  MAIN  STREET 

WEBSTER,  NY.  14580 

(716)  872-4503 


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280  T/ic  Canadian  Banking  System,  1817-1800 

the  bank  in  tlio  prccodinft'  period  was  described  as 
enterprising^  and  aggressive.  It  liad  no  branebes.  and 
tlu'  losses  were  due  to  the  poor  management  by  wliich 
many  ill-advised  loans  became  lock-ups.  The  cashier 
was  afterwards  convicted  for  falsifying'  returns. 

{I))  The  i)resident  and  general  manager  of  the  ]\ler- 
chants'  Hank  of  Canada  resigned  in  February,  1S77. 
A  new  ma.uiger  took  hold  of  the  bank  in  ^larch.  At 
bis  suggesti(Mi  the  stockholders  secured  authority  in 
1878  to  reduce  its  stock  in  the  ratio  of  three  to  two. 
The  reasons  assigiu'd  for  the  reduction  were  bad  aiul 
(hiubtful  debts  })reviously  unprovided  for.  losses  in 
the  Xew  York  office  by  gold  transactions  in  a  falling 
market,  the  i-educed  nuarket  value  of  the  Detroit  and 
^Milwaukee  bonds  purchased  at  the  time  of  the  Com- 
mercial failure,  expenses  and  losses  incurred  in  dis- 
posing of  certain  Quebec  securities,  and  provision  for 
coiitingencies  likely  to  aris?  in  the  business  of  a 
widely  t'xtended  bank,  whose  organization  was  lack- 
ing both  in  strength  and  centralization.  The  reduc- 
tion effected  was  almost  s^.OOO.OOO,  the  capital  being 
brought  from  nearly  ^O.OOO.OOO  to  a  little  less  tlian 
^6,0()().(M»0. 

II.  (a)  The  Niagara  District  Bank,  one  of  tlie  sur- 
vivors of  ••free  banks.'"  lost  heavily  from  the  failure 
of  American  correspondents  in  187!?.  It  is  probable 
that  the  decaying  fortunes  of  St.  Catharines,  the  city 
in  which  the  bank  was  established,  also  affected  it. 
The  paid-up  capital  in  June.  187:?.  was  siioC. ()()().  The 
bank  was  amalgamated  in  187.")  with  the  Imperial 
Bank  of  Canada  (l?S  Vic,  c:}).  Oj),  and  an  exchange 
of  shares  made  on  the  basis  of  the  i-elative  value  of 
the  two  stocks.  Certain  assets  of  the  Niagara  Dis- 
trict  Bank    were  excluded  from  the   reckoning  for 


Bank  Faihirt's  and  Losses,  1874-18:9 


281 


realization   in  «^\cl^siv('  belialf  of  the  original  pro- 
prietors. 

(//)  In  IS70  tlic  St.  Lawrence  Bank,  of  Toronto, 
Avas  reehristened  tlie  Standard  Bank  of  Canada,  and 
shares  of  the  old  i)ank"s  stock  of  the  i)ar  value  of 
si 00  exchanged  against  new  shares  worth  s.")!),  at  the 
I'atio  of  one  to  one  and  a  half.  This  o])eration.  nomi- 
nally an  amalgamation,  was  really  a  stock  reduction 
(amounting  to  not  more  than  .slHO.OOOi.  by  which  the 
bank  could  start  on  a  new  basis,  and  escape  v'hat- 
ever  associations  may  have  been  attached  to  the  name 
St.  Lawrence.     (89  Vic,  cap.  4.").) 

{<■)  At  the  instance  of  the  City  Bank,  then  under 
the  i)residency  of  Sir  Francis  Hincks.  that  corporation 
and  the  Royal  Canadian  Bank  agreed  to  unite  in 
September.  1875.  The  agreement  was  confirmed  bj' 
Parliament  in  1 87(5,  and  the  two  reincori)orated  as  the 
Consolidated  Bank.  ('59  Vic,  cap.  44.)  No  reduction 
of  capital  occurred  at  this  time,  but  rather  an  increase. 
The  reasons  for  the  union  are  obscure:  the  subse- 
(juent  history  of  the  united  bank  pertains  to  another 
l)art  of  the  section. 

in.  (a)  The  Metropolitan  Bank  of  ^[ontreal  was 
one  of  the  banks  chartered  in  1871.  Fn)m  the  first 
it  engaged  largely  in  loaning  upon  bank  stocks,  and 
taking  exceptional  transactions  at  high  rates  of  inter- 
est.' It  was  young  and  ambitious,  and  its  ofticers, 
no  d(»ubt,  fancied  their  methods  modern.  Wlu'U  the 
turn  came  in  1874-7.'),  the  bank's  affairs  took  aditt'er- 
ent  aspect.  Instead  of  profits  there  were  large  losses. 
In  May.  1876,  it  held  sl'il.lHo  of  its  o\\  n  stock,  over 
15  per  cent.  It  had  been  forced  to  re-discount  in 
October,  K-«75.  !i<425,000:  in  May,  187(5.  si 87.090.     As 

^MoueUtvii  Times,  vol.  ix,  p.  112'.t. 


J 


■■\i 


w 


282  77/e  Canadian  lUinhing  Si/.sfcm,  18i;-1890 


f  I) 


I 


'1 


•  -i! 


U 


^iveii  ill  the  return  for  ()etober.  1S7().  the  assets  of 
tlie  hank  w(>r(!  i5lJ14.0()0  less  than  the  liahiHtiesto  tlie 
puhHc  and  shareliohh'rs.  In  June.  1S77.  autliority 
havinj^-  been  obtained  from  J^arliament.  tlie  share- 
holders resolved  j^radually  to  wind  uj)  the  bank,  pay 
off  itsd(d)ts.  and  save  their  investments  from  furthur 
dei)reciatioi].  The  reduetion  of  i)aid-up  banking- 
capital  due  to  this  action  was  SS()0,17(». 

(/>)  Like  the  Metropolitan,  the  Stadacona  lUink  of 
Quebec  was  one  of  the  younj^'er  cori»orations.  And 
like  those  of  the  ^Metropolitan,  its  shareholders,  dis- 
couraged by  adverse  fortune,  decided  to  wind  it  U]). 
Voluntary  liquidation  was  begun  in  July.  1!^7!>. 
AVithin  two  years  the  proprietors  had  recovired  about 
!)()  per  cent,  of  theii-  investments,  and  the  prospect 
for  further  returns  was  good.'  By  this  action  SUDO.UOO 
were  withdr.iwn  from  the  banking  cai)ital  of  the 
country. 

IV.  So  far  a  gross  reduction  of  .s('.,.")(»(i,()()()  in  capital 
alone  has  been  accounted  for.  without  mention  of  the 
other  ways  in  which,  to  meet  their  losses,  the  banks 
were  obliged  to  reduce  the  valuation  of  their  re- 
sources. To  investors,  of  course,  reduction  of  rests 
or  reserve  funds,  the  application  of  earnings  to  pre- 
vent the  inipairment  of  capital,  aud  the  falling  off  in 
dividends,  was  almost  as  serious  as  actual  impair- 
ment of  capital.  The  average  rate  of  dividend  ])aid 
in  1874  by  banks  in  Ontario  and  Quebec,  was  S.7r» 
per  cent.:  in  1S78,  r>.4()  })er  ccMit.-,  in  1S71).  less  still. 
The  shrinkage  of  the  market  value  of  bank  shares 
in  four  years  was  estimated  in  1878  at  not  less  than 
sl7,000,()00.  In  187!)  Sir  Francis  Hincks  reckoned 
the  shrinkage  at  $25,000,000. 

^Monetitrii  TiiiKX,  vol.  xiv,  p.  70. 


■\  ■ 


f 


lUtnl-  Failures  and  Losses,  1874-1879 


•iSA 


Fi'om  tlie  standpoint  of  the  banking-  intci-csts.  tlif 
year  1870  was  tlie  most  disastrons  of  tlir  five  ( >n 
tiio  2Stli  ^fay  ihe  Meclianics"  Hank  stopix-fl  paynicut: 
on  the  Kith  Jnnc.  La  Hancpie  Jac(pU's  Cartici':  on 
the  1st  Angnst.  the  Consolidate*!  Uank:  oii  the  7lli. 
tlie  Exchange  fiank:  on  tlic  Stii.  La  IJan^  u-  Xilio 
]\Iarie:  and  in  Octobei",  the  ]>ank  of  IJ\cipool.  All 
save  the  last  luuncd  had  their  head  ollices  in  Moiiti'eal. 
Natnrally  the  pnhlie  were  alarmed  l)y  so  nuiiiy  sus- 
pensions, and  began  to  wondei- where  dilliculty  would 
next  arise.  Hut  the  condition  of  the  failed  banks. 
if  the  decline  of  stocks  is  an  indication,  had  l)een 
snspected  for  some  time.  !Many  formei- ci'eilitors  had 
transferred  their  trust  to  banks  in  bettei-  esteem. 
Moreover,  it  was  known  that  tlu^  Exchange.  A'ille 
^lai'le  and  Jacques  Cartier  Banks  would  soon  be 
enabled  to  resume.  The  pi'css  and  financial  leaders 
pointed  out  the  exceptional  circumstances  of  the 
banks  in  trouble,  and  urged  tiu'  people  to  main- 
tain a  sober  cai.n.  Rrais  started  ujxin  some  of  the 
solvent  banks  wer(»  cordially  met.  and  in  oue  way 
and  another  a  bank  panic  was  again  averted. 

(a)  The  first  of  tiie  failui-es  was  the  worst.  The 
Mechanics"  Bank  had  been  a  l)lot  on  the  Canadian 
banking  system  foi-  years,  and  it  died  at  last  because 
it  was  too  corrupt  to  live.  The  support  accorded  for 
a  time  by  the  Molsons"  Bank  was  withdrawn  in  ISTC. 
The  ^[echanics"  was  then  obliged  to  reduce  itsca]>ital 
by  40  per  cent.  Its  sul)se([Uent  existence  was  main- 
tained by  means  neither  worthy  nor  legitimate.  The 
managers  had  almost  no  support  from  I'ejiutable 
business  men,  their  disiount  business  was  snuill  and 
confined  to  the  most  undesirable  classes.  The  eiicu- 
lation,  on  the  contrary,  was   highei-  in  proportion  to 


1  :  ■■  : 


« 


) 


t 


If 


r 


'M 


'^84 


T/ir  Ciuiadidii  lldnkinij  System,  1817-1890 


i 


\. : 


'H 


s 


capital  than  that  of  ;uiy  other  hank  in  Montreal,  hut 
it  was  k('i>t  u\)  hy  artificial  and  iniprojier  methods. 
Brokers  in  ^Fonti-eal.  and  aj^ents  on  the  steamhoats 
and  nt  the  hotels,  were  used  hy  the  Mechanics'  Bank 
to  chanj^e  its  notes  fer  other  ])aper.  and  were  paid  for 
the  service.  Aftei'  its  failure,  the  shareholders  were 
forced  ti)  c(intrihute  the  whole  of  the  douhle  liahility. 
Even  then  hut  forty-five  cents  on  the  dollar  of  the 
hank's  deitts.  eithei'  hy  notes  or  deposits,  had  heen 
]»aid  in  ISS:2.  and  in  the  end  only  571  \ivv  cent,  of  its 
liahilities  wer(>  redeetned.  The  jirincipal  sum  thus 
lost  1  V  the  creditors  was  not  less  than  !i^24().(i()():  the 
reduction  of  the  hankiiifj;-  capital  of  the  Dominion, 
caused  hy  its  lossesand(lisai)pen ranee,  ahout  .s4.")(),()00. 
(I)}  From  the  failui-e  of  the  Consolidated  Bank,  on 
the  contrary,  the  puhlic  lost  nothing  heyond  the  dis- 
count of  jo  to  2.")  per  cent,  to  which  the  note-holders, 
wisliin*;"  to  realize  soon  aftei"  the  suspension,  were 
ohliged  to  submit,  and  the  interest  upon  claims,  the 
payment  of  Avhich  was  postponed  until  the  hank's 
arsets  could  he  liijuidated.  To  analyze  the  causes  of 
this  failure,  it  would  he  necessary  to  ex'unine  the 
comparatively  weak  condition  both  of  the  City  and 
Royal  Canadian  Banks  at  the  time  of  amalgamation 
in  1^7.").  theii-  small  rests  and  mediocre  earning  power, 
the  evils  of  the  double-headed  system  of  manage- 
ment  adopted,  the  incom])etence  of  certain  higher 
employes  of  the  bank,  unjustifiable  advances  to  firms 
of  small  calibre  in  Montreal  and  elsewhere,  and  the 
unhenlthy  condition  of  Canadian  business  in  general 
at  the  time  the  Consolidated  met  its  heaviest  losses. 
In  ^lav,  1871).  authority  w^as  granted  to  reduce  its 
paid-up  capital,  then  ahout  .S'5.i"iiOO,00(),  hy  40  per  cent. 
(42  \'ic..  cup.  HH.)     A  new  manager  and   thre(>   new 


4'  ■ 

4 

Jinnk  I-'itiluirs  (Did  Losses, 

1ST4-1ST;* 

■,'85 

1 

directors  discovered  other  losses  ainouiitiiii;-  to 
^]. 4^0.000.  Soon  after  tlie  bunk  failed.  In  IS81  a 
Montreal  stock  broker  offered  to  ^ive  S'Jijo.ikmi  foi- 
the  Consolidated's  assets,  and  pay  what  debts  wei-e 
still  outstanding.  He  was  aecei>t<'d  by  tlw  stock- 
holders. Includinf^'  the  lO  per  cent,  dividend  iilready 
declared,  the  stoeklndders  thus  recovered  about 
twenty-three  cents  on  the  dollar  of  their  reduced 
stock.' 

{<■)  The  Bank  of  Liverpool  failure  diflf'ered  from 
that  of  the  Mechanics'  in  degree  rather  than  kind. 
After  the  suspension  of  1871},  the  stock  had  been 
transferred  to  new  holders,  the  bank  and  business 
reorganized.  Further  losses  were  sutfei'ed,  which 
in  1870  reduced  the  value  of  the  capital  to  ^lO().(»(Hi. 
It  managed,  nevertheless,  to  survive  till  the  autumn 
of  1879.  It  failed  in  October  for  total  liabilities  of 
$i;{0.000.  The  Bank  of  Nova  Scotia  bought  its 
assets,  and  paid  the  s4,000.  or  less,  of  notes  which 
had  been  issued.  The  stockholders  successfully 
evaded  the  efforts  to  collect  the  double  liability  down 
till  1890.  As  the  item  in  the  balance  sheet  (  f  the 
Dominion,  termed  ••  Bank  of  Liverpool  Li(iuidation 
Account,"  still  stands  at  ^84,99(5.  the  exact  amount 
shown  in  '•Government  Deposits"  in  the  last  state- 
ment returned  by  the  bank  before  its  suspension,  one 
may  conclude  that  its  debts  have  not  been  reduced 
in  the  last  four  years.  If  this  be  so.  the  creditors 
have  lost  >>182,81(),  and  the  interest  for  fifteen  yeai's: 
$35,05*3  of  the  principal  was  owed  to  other  banks, 
and  ,^12,701   to   the   general  public,   the  rest  to  the 


V  -t 


« 


I 


.   ! 


;■ 


1  i: 
i 


^Monetary  Time,*,  vol.  xv,  p.  127.  "Tlie  C'iina<la  Securities  Coni- 
pany"  was  the  formal  title  of  the  purchaser  of  the  Consoliilated's 
assets. 


m^ 


:"  ■ 


'4 


n 


j  ^' 


^86 


77te  Vanadiiin  Hankiny  .Systvin,  1817-1890 


g'overnmont.      'riio  sliai'i'lioldcrs,   of   coiirsi',  lost  all 
their  invcstnunit.  in  I'ound  mimbers,  ^;n<),()()(). 

Tlic  I^ivi'ipool's  was  the  lust  of  this  scries  of 
failui'es.  Inclii(liii}4'  the  (lel)ts  of  the  Bank  of  Acadia, 
the  ultimate  loss  of  principal  by  creditors  from  the 
three  disastei-s  was  less  than  >?.")()().0(»0.'  The  losses 
inflicted  ui)on  shareholders  hy  the  various  operations 
detailed  in  this  section  wei-e  far  heavier,  not  less, 
probably,  than  sl2.0()().(H)0.-  Upon  the  banking 
system  of  Canada  the  general  effect  must  be  regarded 
as  hygienic  and  highly  salutary.  The  business  was 
purged  of  well-nigh  twelve  badly  invested  millions.'' 
The  excessive  banking  competition  st)  conducive  to 
the  unsound  trade,  exaggerated  '-enterprise.""  and 
speculation  on  bori-owed  capital  that  had  festered  in 

'( )i-,  [H'ei'isely,  accoi'iliiin  to  the  iiuist  ciuclul  calculatinn,  :J4Sl',:!I"I. 

"riie  luatiTials  I'ur  these  calc'iilations  and  tlie  statistics  as  to  hanks 
t'aih'il  or  ^'oinu  into  iii|ni(hition,  were  mostly  derived  from  an  un- 
printe  1  "lietiirn  to  an  Order  of  the  House  of  ('ominous,  lUited  the 
L':id  .lanuary,  IS'.il),"  Sessional  Pai)ers,  Canada,  ISDO,  vol.  xv,  Mi' c. 
Other  sources  were  the  Moiniari/  Tii/Wf,  various  daily  newspapers 
containinLT  reports  of  shai'cdiolders'  meetings,  etc.,  tlie  "Statement 
of  Banks  actini.' under  Charter,"  ])ut)lisiied  in  tiie  Ci( nKdn  Gazette, 
an.!  for  some  facts,  private  Ictteis  from  jiersons  ac(iuainted  with 
them.  J'art  of  the  Return  cited,  it  should  he  said,  is  printed  in  (iar- 
land,  'It  aiipva,  ji.  4l';  hut  this  i|Uotation  containsatieasttwoserious 
errors,  namely,  as  to  tlie  dividends  j^aid  to  depositors  in  the  ]>ank 
of  Liverpool  and  in  the  Kxciian<j;e  Bank  of  Canada.  In  neitlier 
case  was  the  payment,  as  Mr.  Garland  lias  it,  made  in  full,  but  the 
dividend  from  the  former  l)auk  to  cretlitors,  not  noteholders,  was 
]U'aclically  nothing,  from  the  latter  about  (id  i)er  cent. 

•Cf.  the  remarks  of  tlie  general  manager  of  the  J>ank  of  Mont- 
real, on  the  4th  .fune,  I87S:  "There  is,  perhaps,  no  department  of 
business  where  competition  is  more  keeidy  felt  than  in  lianking. 
We  have,  j^erhaps,  as  great  an  excess  of  banking  capital  as  in  any 
other  line  of  Imsiness.  We  have  to  compete  not  only  with  the 
capital  wielded  l)y  our  neighbors  in  Canada,  but  also  with  the  very 
cheap  money  of  Great  Britain,  which  is  finding  its  way  more  and 
more  into  this  country." — Moiwtiiri/  Times,  vol.  xi,  p.  14',]2. 


JUtuk  Ftii/u res  mill  Ao.sw.v,  1874-1879 


^8T 


tlic  coiiiitry's  (.'oniinci-cc.  was  ]»iilliatt'(l.  Mindt'iil  of 
the  lessons  tiiuf;lit  by  tivt'  years  of  depression,  and 
animated  by  tbe  resolve  to  buy  less  and  produce 
more,  to  live  eeonomically  and  work  liard.  Canadians 
were  now  jtrepared  to  turn  to  i)est  advantage  tbe 
cbaiif^'es  tliat  were  about  to  come  in  their  affairs. 
The  banks,  too.  relieved  in  ^reat  (le<;ree  of  the 
imnibus  of  infhited  assets  and  cajiital  beyoinl  their 
needs,  wei'c  now  in  the  best  of  condition  to  extend 
their  business  in  safe  directions,  and  in  so  doinu-,  to 
lend  theii-  countrynKMi  whatever  help  should  be 
deserved. 

In  October.  1S7!>.  the  tide  finally  turned.  The 
prices  of  wheat  and  tloui*  rose  by  nearly  :!:!.'.  per  cent. 
ITie  iron  market  improved.  ]^>readstuffs.  ^i-oceries 
und  dairy  i)ro(lucts  increased  in  value,  'i'he  market 
for  timber  and  sawn  lumbei-  revived,  and  exports 
increased.  The  yrain  cro]*  was  <;()od.  and  the  farmei-s 
soon  disposed  of  it.  Tin,'  entire  commercial  organi- 
zation felt  the  new  impulse,  manufacturers,  importers, 
exporters,  wholesalers,  retailers.  With  the  entry  of 
a  new  party  to  the  control  of  the  government,  the 
scbeme  for  a  transcontinental  railroad  was  i)uslied 
forward.  [Millions  on  millions  were  brout>ht  into  the 
country  in  the  next  few  years  to  build  the  Canadian 
Pacific  Railway  towards  the  western  coast.  Settle- 
ment in  ^lanitoba  luid  been  started  some  yeais  befoi'e 
187'J.  Immigration  now  increased  I'apidly.  Canad- 
ians also  took  a  part  in  the  development  of  tlie  West. 
Extraordinary  activity  in  I'eal  estate  began  along  tlie 
line  of  the  new  railroad,  and  indeed,  throughout  the 
more  accessible  ]>ortions  of  Manitoba.  JUit  this  is 
material  for  the  historian.     We  must  turn  to 


n 


n 


^''^  ^ 


1:1 


' '  ■  i 


T 


il 


!! 


I :   ' 


■  !'    i^ 


I     I 


388 


Tlie  Canailian  Hanking  Syslnii,  1817-1890 


^  40.  —  'niK  HANK  ACT  KEVISIOX  OF  18S() 

Such  (than^cs  as  were  iiuuh'  in  the  hankiiij;'  law  of 
thu  Doiiiiuioii  at'tci'  IST'i.  were  (IcsI^ikmI  to  coi-rcct 
(Ict'oots  of  detail  ratiicr  tluin  alt(M'  general  principles. 
In  1S7:{  the  form  of  tlie  monthly  return  was  expanded 
in  the  manner  shown  by  the  tahle  in  Appendix  I. 
(liO  \'ic.,  cap.  4:5.)  An  act  of  187.')  relaxed  the  clause 
by  which  the  l)ank  was  unconditionally  foi'bidden. 
directly  or  indirectly,  to  deal  in  shares  of  its  capital 
stock,  an  exception  beinj;'  granted  for  the  necessity 
to  realize  upon  such  shares  ludd  by  the  bank  as 
security  for  any  pre-oxistinj^  and  matured  debt.' 
Tlie  fevni  of  tln'  monthly  return  was  again  amended, 
and  a  statement  of  the  direct  and  indirect  liabilities 
of  the  directors  required.  ('iS  V^ic,  cap.  17.)  In 
1876  a  <^eneral  Insolvent  Act,  passed  the  year  before, 
was  applied  to  incorporated  banks,  with  modifications 
for  their  peculiar  i)Owers  and  circumstances.  (I5!» 
Vic,  cap.  31.)  By  1870  the  evils  of  permittin^f  the 
banks  to  loan  upon  shares  in  other  chartered  banks 
were  become  too  manifest  longer  to  be  tolerated. 
The  clause  permitting  loans  upon  shares  was  stricken 
out  by  an  act  taking  effect  upon  the  15th  November, 
1879.  (42  Vic,  cap.  45.)  The  lien  in  favor  of  the 
banks  upon  shares  held  as  security  for  such  loans 
then  current,  or  for  renewals  thereof,  was  declared 
to  cease  with  the  end  of  the  Parliamentary  session 
of  1880.  To  enforce  the  proliibition.  banks  were 
required,  under  penalty,  to  number  tlieir  shares, 
whih'  in  all  contracts  for  the  sale  of  bank  stock, 
made  after  the  1st  (Jctober,  1879,  it  became  necessary 


'The  expression  "Bank"  is  defined  to  me.an  any  bank  to  whicli 
tlie  act  applies.    (;!:>  Vic,  cap.  •">,  sec.  2.) 


'/'///■  Uanh-  Art  h'rrision  of  1880 


>'S'.t 


to  s])e('if_v  the  numbers  of  tin*  sluircs  convex nl.      Not 
to  do  so  was  nuidc  a  iiiisdcincaiior. 

Tilt'  ('\|tiry  of  all  hiiiik  cliartcis  had  Itrt'ii  set  for 
tlu!  1st  .lidy.  iSSi.  Ill  accortl  with  the  policy  ;ido|itod 
a  (k'cadc  hcforc.  Ministry  and  Parliament  took  up.  in 
the  session  of  ISSO,  the  ([Uestiou  of  what  (dian;^es  to 
make  in  the  system  at  the  time  of  the  tirst  decennial 
renewal  of  charters. 

They  were  anticii>at('d  both  by  the  ]»ublic  iind  banks. 
Amon^-  the  people,  much  dissatisfaction  ha<l  been 
caused  by  the  bank  suspensions  of  the  preceding;  year. 
'I'he  notes  of  only  one  of  the  failed  banks  were  finally 
redeemed  at  loss  than  their  nominal  value,  but  at  that 
time  li(piidation  in  sev<'ral  cases  was  still  incomi)lete. 
To  chaujn^e  the  notes  of  failed  banks  into  convertible 
paper,  the  holder  had  to  submit  to  a  <liscount.  and  the 
brokers  who  took  the  risk  exacteil  amj)le  pay  for  it. 
Many  of  those  holdiiif;'  notes  at  the  times  of  suspen- 
sion had  only  the  (tjitioi;  between  this  loss  and  i»hys- 
ical  want.  They  were  foi'ced  to  realize  at  the  time 
when  the  credit  of  their  debtors  was  at  the  lowest 
ebb.  They  could  not  even  wait  until  the  fears  of  the 
first  week  were  (luit'ted,  much  less  till  the  day  of  tinal 
payment.  And  ui)on  othei"  scores,  the  failure  of  the 
Mi'chiinics*  Bank,  the  shameful  inadetiuacy  of  its 
assets,  and  the  pitiful  dividends  paid  tti  its  creditors, 
gave  every  one  just  cause  for  complaint. 

The  bankeis  understood  the  popular  discontent 
with  the  security  of  the  currency.  They  saw  their 
own  iutei'est.  and  the  country's  interest,  no  doubt  in 
calming-  it.  For  them,  their  privilege  of  cii'culatioii 
provided  an  easy.  conveni<Mit.  and  useful  means  of 
profit:  to  the  country,  it  gave  an  elastic  cui-rency. 
increased  sources  of  discount,  and  through  the  system 
19 


If 


m 


\%^^ 


:   ■! 


f 


^90 


Thr  CiiniiilitiH  r,inik-i)iii  Si/,slrin,  1817-1890 


of  braiK'lirs  proiiiotcfl  hy  it.  widcsprciMi  iiiid  accesvi- 
l)le  l»aiikiii;;-  I'litilit ics.  To  make  tlic  ciirrciifv  nioro 
scciM'c  would  !»<•  a  liclp  to  tlic  Itaiikiu^'  iuttTcsl  no  less 
than  to  tlic  |M'(i|)|(';  the  one  would  lie  str('iii;llH'H('d  in 
(•I'cdil.  and  llic  otlior  i)rot('('tt'd  from  loss. 

Sii-  SanuK'l  Leonard  'I'illoy.  of  New  iJinnswick.  was 
then  .Minister  of  h'inance.  'I'o  him  the  hankers  pre- 
sentetl.  as  with  one  voice,  their  |>ro|»osals  for  reform. 
Anion<>'  them  was  tlw  plan  to  make  tlic  notes  issued 
hy  a  hank  the  first  chare-c  upon  its  assets  in  ease  of 
insolvency,  ll  was  hclicved  that  hy  this  plan  the 
ultimate  payment  of  all  haidc  notes  in  full  wouhl  he 
assured.  Kni'  the  total  assets  of  each  hank  were  from 
six  to  ten  tinn's  its  dehts  on  notes,  and  it  was  thought 
imposs'hlc  for  a  hank  to  keep  in  husincss  until  its 
entire  assets  were  worth  hut  one-sixth  oi-  one-tenth 
their  uoiuimil  amount,  i'xyond  the  assets,  there  was 
tlu>  reserve  liahility  of  shai'choldcrs.  ('(pud  always  to 
the  lii^hcst  limit  of  the  authorized  note  issue.  That 
limit  minht  he  exceeded,  hut  not  without  fiaud.  To 
l»revent  such  fraud,  the  feai"  of  punishment  was  hc- 
licved etft'ctivc.  Even  the  most  reckless  hank  opera- 
tor would  know  that  the  world  is  a  small  ]>lace  for 
the  criminal,  and  the  arm  of  the  law  surprisin<;ly 
long-. 

Against  the  schcnu\  rcvivi-d  apparently  hy  the 
hank  trouhles  of  IS79.  to  remodel  Canadian  charters 
on  the  plan  of  the  National  l^anking-  System  of  the 
United  States,  the  hankers  exerted  an  energetic  oj)- 
l)osition  on  grounds  with  which  we  are  long  familiar. 
Anotlu-r  jyroposal  was  to  estahlish  a  government 
hank  insi)ection.  or  to  provide  for  the  ap}>ointmcnt  of 
an  auditor  hy  shareholders.  Some  of  the  hanks  had 
been  grossly  neglectful  of  proper  inspection,  and  dif- 


^ 


Tli>'  Uank  A't  li>'visiim  nf  1880 


v':tl 


fic'ultics  iU'isii'.^'  hclwccii  lST<i  ;im(1  IST'.i  wrrc  clt-ni'ly 
traccalil'  .  in  cfi'tain  casts.  ti»  tin-  failiii-c  |.riiiM|itl.v  ti> 
(letcM'f  and  ackijowlt'd^-t'  the  diaracttT  «•("  (|ih'sli(»iialil<' 
assets,  r.iit  tin-  hankfi's  arn'iird  that  oii  accnimt  of 
its  jiiaiiy  l»raiicli<'s.  and  tlic  mult  i|ilicit_v  and  vai'ifty 
nl'  the  ('oninid'ciiil  j>a|tt'i-  in  its  assets,  it  woidd  he  ini- 
jtossihle  for  a  ;^i»\ernniei.t  inspt'ctoi'.  nc  ;in  auditor, 
properly  to  inspect  a  Canadian  hank.  It  was  far  liet- 
tei'  to  rely  on  the  carerul  or^^ani/at ion  of  the  hanks, 
the  vi;;ilance  of  the  directors,  and  the  inspection  hy 
trained  nieu  of  its  own  stall',  who.  ti-avellin^'  the  year 
round  froni  l)i'anch  to  l)i-ancli  and  repoitin;;'  to  the 
y;eneral  nianaj;"er.  would  have  nought  to  j;ain  hy  con- 
cealine-  the  truth,  and  everyt hinu'  to  lose.  Then  if  a 
Itank  upon  whi(di  tlie  rejiort  <d'  the  ;;dvernnient  in- 
spector had  heen  favorahle  should  fail,  many  of  those 
wlio  had  ina(h^  theii-  (le]»osits  on  the  strength  of  the 
olMcial  report  would  certainly  Jiold  the  <;'o\  ernnient 
responsihie  f(tr  sucdi  h>ss  as  they  n»i;^iit  incui'.  Tlie 
Minister  (h'cidcd  in  favor  of  all  tliree  of  tlie  ct)nlen- 
tions  of  the  l)ankers. 

'riie  resolutions  for  the  lUinkinj;-  Act  Ani'  ndnient 
hill  hrouj^iit  down  hy  Sir  Leonard  Tilley.  were  .i(h)])ted 
l>y  the  House  without  iiundi  (jhjection.  and  after  very 
short  d(  l)ate.  The  pi'incipal  proi)osijl,  furtlier  to 
secure  the  note  circulation,  was  ohjccted  to  hy  Liher- 
als  as  likely  to  increase  the  danger  of  I'uns  from 
depositors,  if  from  no  otiu'i-  motive  than  a  desire  to 
convert  their  ordinary  claims  into  privile<^ed  liens.' 
This,  it  will  he  remembered,  was  the  view  taken  hy 
Sir  Francis  Hincks  in  1870.  a  ^linister  to  whom  they 
were  also   in   opposition.      But    what  really  deprived 

'Debates  of  the  House  of  C'onimuns,  Canada,  issu,  vol.  ii.  p.  172'.". 
Remarks  of  Sir  Richard  Cartwriglit. 


R 
It 


in 


P 


•J 

;  ( 


J'' 


t 


29S 


'/'//<'  Ciiniidiiin  natikimj  Si/sfem,  1817-1890 


•)•) 


tlio  criticisiii  of  its  force  was  ihv  fact  tliat  the  jm'o- 
posal  now  came  from  banks.  The  hill  its',  if  was  \mv- 
sented  on  the  'JTth  Ajtril.  1S8(>.  It  passed  the  llous(; 
on  the  nth  ]\lay.  the  Senate  on  the  7th.  On  the  same 
day  it  i-eceived  the    royal  asstmt.       (4:)  \'ic..  cap 

The  charters  of  the  thirty-fonr  hanks  still  in  opera- 
tion wei-e  continned  to  the  1st  Jnly.  is;»l.  and  thost 
of  fonr  others  until  their  liiiuidation  shouhl  he  com- 
plete<l.  Besides  estahlishinji^  a  i)rior  lieu  in  favor  of 
tl)e  holder  of  an  insolvent  hank's  note,  the  act  pro- 
liihited  the  issue  oi-  re-issue  of  notes  for  sums  less 
than  s,"),  oi-  for  sums  not  multiiiles  of  s.').  and  calh'd  for 
the  retirement  of  all  s4  notes  as  soon  ;is  practicable. 
The  banks  were  obliged,  when  nuikiui;'  any  pay- 
ments. ti>  jiay  the  sum  at  the  reipu'st  of  the  payee, 
or  so  much  thereof,  not  exceeding-  sHO.  as  mi<;ht  be 
recpiested.  in  Dominion  notes  for  one  or  two  dollars 
each,  at  the  ojitiou  of  the  r(>ceiver.  The  ])roj)ortion 
of  cash  reserves  to  be  held  in  Dominion  notes  was 
raised  from  oiu'-thii'd  to  40  ]»er  cent.  Proxies  not 
made  or  renewed  in  writinj;-  within  three  yeai's  lU'xt 
preceding-  a  meeting-  of  shareholders  were  declai(Ml 
invalid  for  i)urposes  of  voting. 

Persoe.s  holding-  stock  as  represi'uting-  others,  if  so 
declared  in  the  bank's  books,  were  exemi)ted  from 
liability  on  such  stock,  recoursi'  being  resei-ved 
against  the  estate  and  funds  held  in  trust.  The  form 
of  the  monthly  return  was  again  expanded,  partly  to 
secure  nau-e  con\plete  details  of  the  position  of  the 
s(>veral  banks,  partly  to  remove  the  ambiguities  in 
the  I'l'turu.  by  which  ci-iminal  i>rosecutious  under  thi' 
Bank  Act  had  been  lost  by  the  Crown  in  187'.*.'  As  a 
safeguai'd   against   investments   of  too  great  pernia- 


'INIoi-giVii,   'Tlio  I)iiiniiiioM  Aniuuil  Koizi.stcr,"  Montrc;il.  \s7'.<,  ]> 


L'n. 


I 


?! 


'/'//('  lla»k  Art  Ucvision  o/"1880 


;o3 


neiu'c.  the  period  for  \\iii('li  llic  bank  ini<;lit  hold 
rt'iil  pi'oi»crty  not  i'('(|uii'(Ml  for  biink  ]tr('inis(>s,  was 
liniitt'd  to  sovcn  years  from  the  daio  of  a('(|uisition. 
Tlu' assumption  l»y  any  Mrni  or  hank  of  the  title  of 
"•Inink"  without  autliority  under  the  <i^eneral  hnnkin^ 
laws  of  tile  Dominion  wns  made  ;i  misdemeanor. 
The  puri»ose  of  the  clause  was  to  niiard  tht>  public^ 
fi-om  misplacin*;-  their  eontideiiee  on  the  su]>position 
they  w(M'e  dealin*^'  with  establishments  i-eco^nized 
by  I'aiiiiiment :  one  i-esuit  was  to  conlirm  to  thecdiar- 
tered  corporations  exclusive  jirivile^^'es  in  the  name. 
The  recpiii-ement  that  bnnk  shares  should  lie  num- 
bered, and  till'  numbeis  specified  in  contracts  for  the 
sale  of  shares,  was  I'citeiiied.  It  had  interfered  witli 
leiiitimate  ti'ade  in  bank  stock,  while  the  brokers, 
against  whom  it  was  aime<l.  Imd  successfully  e\  aded 
it.  The  sections  of  the  Uank  Act  dealing'  with  loans 
upon  warehouse  I'eceiitts.  etc..  wei'(>  aj^ain  amended. 
Besides  timber,  all  sorts  of  lumlter.  all  a^^ricultural 
])roduce,  and  otIuM'  artich^s  of  commerce,  the  ex])ros- 
sion  "n'oods.  wai'es  and  merchandise'"  was  extended 
to  include  poti"(deum  and  ciaide  oil.  A  bank.  ii])on 
shipment  of  _i;'oods.  was  permitted  to  suii'endei-  the 
wareliouse  receipt  for  them,  and  receive  in  exchange 
a  bill  of  ladin}4'.  or  upon  delivery  and  stora^'c  of  the 
(I'oods.  to  surrondei'  the  bill  of  ladin;.;'  r<'ceive(l  as 
security,  and  take  a  wareh  lUse  receipt  in  exchange. 
Some  further  changes  were  made  in  iss:'..  with  the 
jniri  ose  of  more  etfeiMually  enforcing  the  prohibi- 
tions, restrictions  and  duties  already  imjinsed  on  the 
chartei'cd  banks.  Most  (d'  these  had  hitherto  been 
sanctioned  by  the  penalty  of  (diarter  forfeiture. 
Experience  had  proven  that  this  was  insiifbcient  by 
rer.son    of    its    e.vcessivi"    severifv.      The    banks    had 


ip 


294 


The  Canailian  litnikin;/  Si/.sfcni,  1817-1890 


i  ' 


I' 


'f 


i 


111 
it 


fi 

Kii 


•it 


ill 


i 


lit 


i! 


imposed  somcwliat  upon  the  unwillingness  of  the 
government  to  punish  a  slight  transgression  by  de- 
priving the  guilty  corporation  of  its  existence.  80, 
while  the  [lenalty  of  forfeitui'o  was  held  in  i-eserve, 
money  penalties  wei-e  now  adopted  to  bring  the  banks 
to  time.  For  each  day's  delay,  after  the  opening  of 
Parliament,  in  transnntting  to  the  Minister  of 
Finance  the  certified  list  of  sharelioldcis.  a  fine  of 
$f)0  was  imi)os(Ml.  The  penalties  laid  down  upon  note 
issue  in  exi'ess  of  cai)ital  stock  paid  in,  wei'e  as 
follows: 

For  an  excoss  not  cxcee(liii<;  ?2n,(i00 $      IdO 

For  iiii  t'xcess  bt'twceii  $L'(l,ii(iO  and  $1(mi,(hiu ],(iu(i 

For  an  oxcess  botween  $100,(1(10  and  $i.'0ii,00n. . .  5.0(i0 

For  an  excess  exceeding;  $L'(iO,0(iO |(i,0(iO 

Other  tines  were:  for  each  time  that  the  Dominion 
notes  in  the  cash  reserve  should  be  less  than  4(1  i)er 
cent,  thereof.  S^.'O:  for  each  day  of  neglect  to  send 
the  retui'u  within  twenty  days  of  the  end  of  each 
calendar  nKuith.  ^oO:  for  each  contravention  of  the 
sections  limiting  the  business  of  the  bank  to  certain 
transactions  and  classes  of  loans,  $500.  Tlieformof 
the  return  was  amended  to  show  the  amount  of  the 
rest  or  reserve  fund,  and  the  rate  per  cent,  of  the  last 
dividend.  The  last  change  to  be  mentioned  was 
opposed  by  fi'iends  of  the  many  private  bar^ks,  but 
was  beconu'  necessary,  further  to  prevent  the  public 
from  being  misled,'  The  use  of  the  titles.  '•  Hanking 
Company,"   "Banking  House,""   "Banking  Associa- 


tion," "Banking  Institution, 


or 


Banking  Agencv," 


by   bankers  not  working   under  the   Bank   Act.  was 

'Debates  of  tlie  House  of  Coni'iions,  Canada,  188:!,  pp.  'M  ft se'j., 
188,  104.  Remarks  of  Sir  Leonard  'lilley,  Messrs,  Blake,  Fairbank, 
and  Casev. 


■r   1   Z'} 


Dominion  Xo/c  Lef/i.'^hi/ion,  187"-i-1880 


•idb 


made  a  misdemeanor,  unless  tlie  expression  -'not 
incorporated"  were  added  to  the  title,  (4(;  \'io., 
cap.  20.) 

J<47.  —  DOMINION   NOTK  LK(;  ISI.ATION.    IST'i     18S(I 

Though  one  of  them  was  explained  as  a  response 
to  puhlic  complaint  of  dilliculty  in  securin*;-  Domin- 
i<jn  notes,  the  new  clauses  of  the  act  of  ISSO  in 
regard  to  these  legal  tender  issues  wei-e  altogetlier  in 
the  interest  of  the  government.  Ijikewise  in  the 
interest  of  the  government  was  the  provision  by 
which  the  banks  were  depi'ived  of  the  right  to  issue 
notes  for  .s4.  For  it  was  intended  i)artly  to  refill 
their  i»lace  in  the  circulation  by  Dominion  notes,  and 
to  increase  the  issue  in  other  ways. 

Under  pressure  from  friends  of  the  government  Sir 
Francis  Hincks  had  reluctantly  consented  in  1872  to 
mar  the  beautiful  analogy  to  the  English  system  he 
had  devised  in  his  first  Dominion  Note  Act.  The 
reserve  of  specie  recpiired  against  issues  in  excess  of 
nine  million  dollars  was  reduced  from  dollar  for  dollar 
to  •'  not  less  tlian  '};")  per  cent,  of  the  excess."  C?."") 
Vic,  cap.  7.)  Prior  to  J874  there  was  freciuent  criti- 
cism of  the  inadequacy  of  the  reserve  held  against 
the  notes,  and  comi)laints  that  the  requirement  as  to 
bank  reserves  had  diminished  the  amount  of  gold  in 
the  country.  One  also  finds  protests  that  the  gov- 
ernment should  cease  to  issue  from  Toronto  notes 
payable  at  Montreal,  or  rice  versa,  and  that  when 
called  on  for  specie  to  shii>  for  Xew  York,  it  should 
desist  from  paying  out  sovereigns  instead  of  eagles, 
and  thereby  forcing  American  gold  to  a  premium, 
often  one-eighth  of  one  per  cent.     Xothing  has  yet 


^  ^'  I' 


■fli 


II  ' 


!    1. 


! 


ih    > 


296 


7'/te  CanaiUan  Bitnkinn  Si/s/on,  1817-1890 


appeared  to  justify  tlie  opinion  that  these  critieisms, 
coniplaiiits  and  protests  were  without  jjjood  eause. 

When  the  Ijiherals  came  into  power  tliey  improved 
the  law  in  accord  witli  the  sound  monetary  theories 
of  their  Minister  of  Finance.  Sir  Richard  ,T.  ("art- 
wriy^lit.  By  tlie  amending  act  of  1875  (:i8  Vic.  caj). 
5).  tlie  Receiver  (Jeneral  was  required  to  liold  against 
the  outstanding  circulation  in  excess  of  s'J, ()(>(). 000 
and  less  than  $I2,()()0.()0U,  Ho  i)er  c«Mit.  in  specie;  and 
against  any  excess  over  s  12, OOO. ()()(),  specie  to  the 
full  amount.  In  187(')  the  laws  respecting  Dominion 
notes  were  extended  to  the  }irovinces  of  Prince 
Edward  Island,  British  Columbia  and  ^Manitoba, 
and  the  (iovernor  authorized  to  establish  branch 
offices  of  the  Receiver  (Jenerars  department  at  C'har- 
lottetown.  Victoria  and  Winnipeg. 

Sir  Leonard  Tilley  now  jiropost-d  to  extend  the 
limit  of  notes,  only  i)artially  covered  by  si»ecie.  to 
!?2(), (>'.)(>. 000.  the  cii'culation  to  he  increased  by  not 
mon;  than  Si. (»()(). OOO  at  a  time,  or  more  than  $4,()(»0,- 
(>()()  in  any  oiu'  year.  At  the  same  time,  he  proposed 
to  reduce  the  strength  of  the  specie  reserve  by  pro- 
viding that  a  minimum,  equal  merely  to  15  i)er  cent, 
of  the  amounts  outstanding,  should  be  covered  by 
gold:  by  this  gold  and  Dominion  securities  guaranteed 
by  the  government  of  the  United  Kingdom,  not  less 
altogether  than  25  per  cent.: and  the  renuiining  75  per 
cent,  or  less  of  the  issue  by  Dominion  debentures, 
issued  foi"  the  purpose,  and  held  by  the  Receiver 
(ireneral.  The  project  was  strongly  opposed  by  the 
minority  in  Parliament.  It  was  the  rallying  i)oint  of 
the  whole  debate  upon  questions  of  banking  and  cur- 
rency. The  ^Minister,  however,  beheld  the  prospect 
of  added  linaucial  aid:  he  heard,  })erhaps.  the  clamors 


f 


nm 


1880-1890 


of  tile  'Tag  baby"  as  well  among  the  people  ns  in 
Parliament.  He  was  confident  bis  bill  would  find 
favor  among  tbe  friends  of  government  i)a]>er.  His 
I)arty  was  always  ready  to  follow  Sir  Jobn  ^laedon- 
ald.  and  Sir  Jobn  strongly  sup}torted  tbe  bill.  It 
passed,  as  a  matter  of  eourse;  but  tbe  victoi-y  was 
one  of  votes  rather  than  reason.     (41^  Vie.,  cap.  J'i.) 


^4S.— lS80-l8Si) 

Two  of  tbe  general  measures  relating  to  banks, 
and  passed  by  Parliament  in  tbese  years,  bave  been 
mentioned.  Tbe  only  otber  important  laws  in  tlie 
grou])  were  tbree  acts  respecting  coritorate  bank- 
ruptcy: ■■an  Act  I'especting  Insolvent  I'anks,  Insur- 
ance Companies,  Loan  Companies,  P>uilding  Societies, 
and  Trading  Cori)orations,""  passed  in  1S8:2.  anotber 
of  tbe  sanu!  title  in  ISiS(5,  and  tbe  ■•  Winding-Up 
Amendment  Act""  of  J  SSI).  (4,")  Vic.  cap.  *i'}:  41)  Vic, 
cap,  12!):  x2  Vic,  cap.  ''i'2.)  To  desci  ibe  tbese  meas- 
ures in  tbeii-  entii'ety  would  involve  too  long  an  ex- 
cursus into  banki'uptcy  law,  and  only  seven  of  tbe 
one  bundred  and  twenty-tbree  sect'ons  of  tbe  statute 
in  its  final  form  applied  exclusive  ly  to  banks. 

Private  acts  respecting  individual  banks  were  far 
more  freciuent.  Tbere  bad  been  two  new  cbaiters 
granted  b(>tween  ISTo  and  1S71).  to  wit:  in  iSTo  to 
tbe  '•  Panque  Saint  Jean  IJaptiste,""  of  ^lontreal,  and 
••  Tbe  Cbartei-ed  Hank  of  London  and  Xoi'tb  Amei'icu" 
in  ISTC).  (:}S  Vic,  cap.  T)'.):  :'.!)  \'ic.  cap.  40.)  Tbe 
latter  bank  bad  as  cbarti-r  members,  two  bunk  pi'esi- 
dents,  one  a  member  of  the  House,  tbe  other  of  the 
Senate,  the  nuiyor  of  Toronto,  anil  tliree  otbei-  sena- 


A 


>■  ; 


ri    5; 


W^-:t  I 


' 


J 


'r 


!:.       i 


'^mk 


ir- 


i; 


I- 


■ 


lit 

'•I 


»     t 


fit 


li 


298 


77/r  Cioiftdian  I'xinkinfj  System,  ISlT-lSno 


tors;  but  they  failed  to  attract  the  s2r)U,()()0  required 
before  the  bank  could  begin  business.  Like  tlie  pro- 
ject of  the  '•  London  and  Canada  Bank,"  whose  char- 
ter was  extenrh'd  a  furtlier  year  in  187(5.  it  was  tlie 
expression  of  an  effort  to  secure  more  Enj^lish  cai)ital 
for  Canadian  uses,  by  means  of  a  colonial  bank  with 
an  agency  established  in  London,  England,  under  a 
local  board  <»f  directoi's.  The  charter  was  revived, 
ameiule(l,  and  the  name  of  the  proposed  joncern 
changed  to  the  ••Chartei-ed  l>ank  of  London  and 
Winnipeg"  in  ISSO.  But  neither  of  these  projects  to 
introduce  methods  so  closely  resembling  those  (»f  the 
Australian  banks,  was  ever  successfully  carried  out. 
'i'hirteen  new  banks  were  incorporated  between 
IS82  aiul  lcS8().  There  were  four  in  1882.'  three  in 
1883,- four  in  1884,-' and  two  in  188(!.^  Of  the  four 
proposed  foi-  Winnipeg,  ^Manitoba,  one  started,  the 
Commercial  Bank  of  Manitoba.  Of  the  two  for  Mon- 
treal, for  one  of  which,  the  '-Planters'  Bank  of  Can- 
ada," it  was  i)lanned  to  have  branches  and  local 
directors  in  the  United  Kingdom  and  the  West  Indies, 
neither  began  business.  Of  the  two  for  London,  On- 
tario, only  the  -'Bank  oi  London  in  Canada"  was 
established.  Of  the  three  whose  head  offices  were  to 
be  in  Toronto,  two,  the  •'  Central  Bank  of  Canada  "' 
raid  the  ••Traders"  Bank  of  Canada,"  secured  the 
necessary  ca])ital.  One  other  corporation,  the  •'West- 
ern Bank  of  Canada,"  opened  in  Oshawa,  Ontario. 
Out  of  the  thirteen,  eight  charters  were  forfeittnl  for 
non-user,  in  spite  of  the  extension,  in  four  instances, 

'4.')  Vic,  cap.  (il-(i4. 
-4(>  Vic,  cap.  ",()..-,'_'. 
•'47  Vic,  cap.  4S-.")1. 
'4i»  Vic,  cap.  (i4-('.(;. 


1880-18!I0 


209 


of  the  time  limit  fixed  for  i)aynu'iit  of  the  capital  re- 
quired befoi'e  the  I'hartei-  coliM  he  used. 

Anothei'.  and  rather  fareial.  e])is<)de  of  the  I'ai'lia- 
mentary  histniy  of  hankiiij;'  in  this  decade  w;>s  the 
a^'itation  carried  on  hy  a  few  stron^-iunycd  niemhfrs 
from  the  I'ural  ridings.  They  wanted  ••  Kmnn  is" 
Banks."  inci'eased  issues  of  lej^al  tender  |>a]»er.  and 
the  allied  measures  which  luive  been  most  favoi-cd  in 
the  Tnited  States  bv  the  Greenljack  I'artv  jind  Ponii- 
lists.  Similar  proposals  had  l)een  advancrd  in  1S7S 
hy  ^Ir.  Thompson,  of  Welland.'  IJnl  the  niuvrment 
was  bej^'un  on  more  definite  lines  in  ISN-I.  'I'ho  motion 
for  a  Select  Committee  to  consider  means  of  nivin^" 
farincM's  better  l)ankin}j:  facilities  was  supported  by 
Dr.  Orton  in  a  speech  which  still  tills  live  paj^cs  of 
the  debates.-  llis  conii)laint  in  behalf  of  the  farUi-'rs 
ag'ainst  the  extortions  of  ])iivate  money  lenders  oi- 
note  shavers,  was  probably  well  founded.  Then.  too. 
the  preliminary  expense  of  search  of  title,  law  fees. 
etc..  made  the  cost  of  short  time  loans  on  i-eal  estate 
excessively  hi<;h:  yet  how  the  issue  of  Dominion 
notes,  secured  by  first  m()rt<;aj^i'  on  farms.  an<l  re- 
deemable only  l)y  four  ]»ei'  cent,  bonds,  could  nn-nd 
matters,  he  failed  to  nuike  clear.  There  was  as  little 
reason  in  the  other  proposals,  e.  (/..  to  establish  farm. 
or  real  estate  banks  on  ca]>itals  consisting-  of  faini 
mortj;ag'os.  government  bonds,  and  gold,  to  jxruiit 
them  to  deposit  the  capital  with  the  government, 
and  secure  pajx'r  government  money  in  icturn.  to 
permit  these  banks  to  charge  no  greater  interest  on 
ordinary  loans  than  ti  jier  cent.,  and  or  .noi'tgage 
loans  than  5  per  cent.,  and  to  deprive  the  c-hartere(l 

'Doliates,  House  of  Commons,  Canaila,  1S7!',  p.  1211. 
'Ibid,  1SS4,  pj).  L'l  1-215. 


0 


•     •■ 

f 

:  il 

11:1 


ii 


'  1 


N 

'■  '   } 
\    ' 

'  '^  :• 

il 

i 


\ 


300 


The  Canudian  /Jatd'ini/  ><i/*</ci)i,  1 817-1 8!>0 


banks  of  tlirir  power  to  issue.  UiuU'rnoatli  the  plan, 
us  niic  niny  sec,  lurked  hostility  to  the  banks,  and 
the  so-ciilled  >•  money  power."  The  notions  enter- 
tained l>y  the  speakei-  on  interest,  capital,  nioiu'y  and 
bankin}4"  were  pei'veited,  while  he  was  stronj;ly  in- 
tluenced  by  a  jieiiehant  for  irredeemable  paper  cur- 
rency, and  a  simple  faith  in  the  universal  ( flicacy  of 
lej^ishition. 

The  next  year  he  (lraft<Ml  resolutions  for  a  bill,  and 
was  helped  in  support  of  them  by  the  advocates  of 
small  local  banks.  a<lmirers  of  inirrency  secured  by 
Itonds.  and  believei's  in  the  issue  of  paper  currency 
exclusively  by  government.  No  less  than  Sir  John 
Macdonald  himself  closed  this  debate,  and  in  words 
of  honeyed  ambiguity,  soothed,  even  consoled  the 
agitator,  while  n(>t  connuitting  the  (Government.' 
In  ISSC)  the  ([uestion  was  aj^ain  introduced,  a  now 
bill  [irepared.  and  the  measure  actually  brouj^ht  to 
the  stage  of  consideration  in  conunittee.  'i'here  it 
stopped  for  good.-  In  ISS;")  some  of  the  ()pi)osition 
asserted  that  the  ai)parent  willingness  of  the  (irovern- 
ment  to  devote  tinu'  to  the  iliscussion  was  really  a 
l)it  of  fence  repaii'ing  foi-  the  next  election.  'J'hose 
less  swayed  by  party  feeling  will  doubtless  prefer  to 
explain  it  by  the  broad  and  tolerant  spii'it  foi-  whicli 
the  Premier  and  his  colleagues  were  distinguished. 

The  story  of  the  banks  themselves  during  this 
decade  has  fewer  sensational  features,  and  no  such 
sti'ong  contrasts  as  that  of  the  pi'eceding  ten  years. 
In  most  cases  the  end  of  the  term  found  the  banks 
with  increased  business  rather  than  cai)ital.  The 
total    capital  in   lS8i)   was   s()(),2S9,l)10,   870.(»()0  less 

'  Dobiites,  House  of  Conimons,  Canaila,  iNS."),  pp.  ]  1  .">- 1 :,'(». 
-7Wf/,  ISSC),  pp.  4L'7.  4:iL'-437,  .Ml -58."). 


1S80-1800 


;ioi 


than  in  1S71).  The  total  (Icjtosits.  pnynMc  tm  (Icniniid 
to  the  general  i»iil)lie,  rose  from  !i<4'J.(K)0.()()(i  on  I'm. 
:ilst  Deceniher,  1880,  to  s.').'). ()(>(),()(»(>  on  the  last  «lay 
of  1S89:  deposits  }>ayal)le  after  notice  or  on  a  tixed 
day,  from  ^MT.Ooo.OOO  to  s71,()(I().(K»():  the  total  liai)ili- 
tiesof  all  the  banks  from  s| -J  l.ouo. ()(){)  to  si  71.(1(1(1. (1(10. 
Loans  on  stocks,  bonds,  etc..  i-ose  from  s8.(i<i(i.0(i(i  t(t 
sK^OOO, (>()()  between  the  two  dates:  loans,  discounts 
or  advances  on  current  acconnt  i;*-  cori)orations  otlicr 
than  municipal,  from  ^4.()00,<KM>  to  s:>;}.0()().(i(i(t:  cur- 
rent loans,  discounts  and  advances  to  the  public,  from 
^1U.^),()()(),000  to  !;;ir)().0(»(>. ()()(>:  and  the  total  assets  of 
the  banks  from  s|l):2. (»(»(),(>()()  to  s'J.')i^.()(i().()0().  A 
larger  proportion  of  the  funds  of  the  banks  wcic  in- 
vested  in  Canada  on  the  latter  date.  ••Balances  due 
from  Agencies  of  the  Hank,  or  from  other  Hanks 
or  Agencies  in  Foreign  Countries."  were  only 
$] 0.720,877,  as  compared  with  sl0,;u;{,r)88  on  the 
;nst  December,  1879,  and  !i;:27,()41.(i()8  a  year  later. 

For  this  heavy  increase  of  bnsiness  on  both  sides 
of  the  account,  there  are  two  canses  at  least,  close 
at  hand.  The  one  is  the  growth  of  Canadian  trade 
and  industry;  the  other  the  policy  by  which  the 
nmnber  of  branclu.'s  was  increased,  and  the  banks 
brought  into  closer  relations  with  the  eounti'y 's  needs, 
particularly  those  of  the  agricultural  sections.  'J'his 
last  may  have  been  ])artly  jjromptcd  by  the  evi- 
dences of  discontent  with  their  banking  facilities 
among  the  farmers.  But  two  other  strong  induce- 
ments were  also  effective,  the  lirst  being  the  chance 
profitably  to  employ  funds  in  the  assistance  to  agri- 
culture and  the  Industrie's  that  thrive  by  its  sid<-:  the 
second,  the  oi»pt)rtunity  foi-  increasing  the  notecircu- 


II 


;i) 


ITI 


I 


J 


■;  t 


'N 


I      i. 


h  I 


I 


1^ 


WZ  The  (Janudian  lianklinj  System,  1817-1890 

hitioii    tliat    a    ('(Hintry    l)iisiiu>ss    ahvays    affords    to 

4 

a  Itaiik. 

As  a  ^•t'licral  rulf.  tlic  i)racti('e  of  tlie  banks  was 
marked  hy  j^rcalcr  caution  and  i»rudonce  than  in 
iSTo  to  IS75.  More  atti-ntion  was  ]>ai<l  to  the  sound- 
ness and  security  of  business  taken  in  hand.  Inquiry 
as  to  t  heftpplication  of  means  became  more  searchinjj;'. 
As  a  result,  advances  converted  by  borrowers  into 
real  estate,  improvements,  or  plant,  or  used  as  per- 
nuinent  capital,  became  fewer,  tlie  h)sses  an(llock-ui)s 
less  sei'ious.  A  share  in  tliis  betterin<j^  of  the  discount 
business  nuist  Im'  ascribed  to  changes  in  the  personnel 
of  the  staff  of  the  banks.  Whether  their  first  ti-aining- 
had  l)een  received  in  Britain  or  in  Canada,  nearly  all 
t he  hi^hei' ollicers  of  the  banks  had  now  enjoyed  a 
Ion;;'  Canadian  e.\|)erience.  To  the  admirat)le  tra- 
ditions (if  Scotch  and  Knjj;lish  l)anking'.  they  added  a 
minute  and  extensive  knowledge  of  Canadian  coii- 
dilit)ns.  a  double  equi|)ment  which  redounded  Iai'f;('ly 
to  the  advanta.i;'e  of  their  employers.  A  keener 
a.})preciatioP  of  sound  banking"  i)rinciples  may  be 
remarked  in  the  declarations  of  mana^'ers  and  presi- 
dents in  tlieii'  luiblished  speeches  to  shareholdei's  :  it 
may  be  inferred  from  the  fewer  losses  and  bad  debts 
incurred  by  the  banks  as  a  whole.  This  ])r()jj^i'ess 
was  furthered  by  the  memories  of  1874  and  1S71J.  and 
i"ej:^i'et  foi-  numy  costly  mistakes  in  the  time  of  expan- 
sion. It  was  also  jiromoted  by  the  penalties  imposed 
for  violation  of  the  ]')ank  Act.  and  the  amendments 
in  the  Keturn.  calculated  more  fully  to  exjjose  a 
bank's  condition  to  the  watchful  criticism  of  the 
public. 


It  is  not  to  b 


)sed  from  this  tliat  the  course 


'    SUpJ)Oi- 

travelled  by  the  banks  was  one  of    unbroken  })ros- 


ffl 


1880-1890 


yo.j 


IxM'ity.  or  that  the  statonu'iits.  generally  true,  were 
without  excei)ti()n.  The  recovery  from  the  (lei)ression 
of  the  seveiilh's  was  slow,  and  as  late  as  I.^SJ  it 
hecaiue  iieeessarv  for  the  Kxehaiiu'e  Ihmk  and  tlie 
Hanciiie  \'ille  Marie  to  reduce  their  cai)itals  eacli  hy 
one-half  million  ilollars.  (41  \'ic..  caji.  !)."»-:!().) 
They,  however,  wei-e  exi;ei)tions.  the  other  hanks 
having;'  met  theii-  losses  yeai's  hefore.  The  hanks 
j^'eiH'i'ally  sluired  in  the  hetter  times  of  JHSO  to  It^S:?  : 
they  felt  the  reaction  in  1SS4  ISST  :  tlieir  hnsim'ss. 
like  that  of  the  rest  of  the  country,  aj^ain  displayed 
normal  activity  in  ISSiS.  TJu-  periods  nanu>d  can  he 
understood  in  only  the  most  general  way  ;  conditions 
varied  in  difTerent  pai'is  of  the  counti-y.  and  cdianj;es 
did  not  come  at  pi'ecisely  the  same  time. 

Pi'ohahly  the  most  striking  conditions  and  cliauf^^es 
were  to  he  found  in  the  ••I'raii'ie  Province." '  Manit<d)a. 
Thei'e  the  railway,  immigration,  settlement  and  trad- 
ing' in  real  estate  hetween  IS7!)  and  ISSO.  developed 
a  land  hoom  of  the  first  ordi-r.  The  i)rice  of  hnilding 
lots  in  Wimiipeg.  the  jji'ovincial  cai»ital.  rose  ahove 
tu  '  vahu.'  of  land  as  centrally  located  in  Toronto  and 
Montreal.  All  kinds  of  land  schemes  were  started, 
and  there  was  a  corresponding  expansion  of  entei-- 
prises  of  other  sorts.  Thousands  of  ]»ersons  in 
()ntario  had  sold  the  solid  securities  which  often 
comiirised  their  entii'e  fo  'tune  to  put  the  pi'occeds  in 
lands  in  prairie  villages  of  which  the  ink  on  the  first 
survey  was  harcily  diy.  As  others  lost,  they  lost. 
The  upward  flight  of  values  was  high,  hut  it  was 
hrief.  The  end  came  late  in  the  autumn  of  issy. 
^lillionaires  in  i»rospect  fouml  themselves  ^taupers  in 
fact.  The  inflation  was  tolerahly  thorough  through- 
out the  province,  and  when  land  values  fell,  a  good 


'  I 


81 

h 

3i 


304  The  C'nndtlinn  liankbuj  Sijslon,  1817-1890 

imrt  of  llic  coinmuiiity  hcciunt'  insolvent  forthwith. 
Their  I'liin  ciiused  other  faihires.  <im<1  so  on,  niitil 
thos(^  \ver(^  also  hi'ouj;'ht  liosvii  wlio  h.iil  tlioil;^iit 
theniseives,  uiid  were  thought  l)y  others,  perfectly 
imh'peiKh'iit  of  the  turn  taken  hy  the  market  foi'  real 
estate. 

It  was  on  this  acconnt.  ami  not  heeanse  they  had 
loaned  on  land  or  eneotiraK'c'd  the  inllation.  that  tin; 
chartered  hanks  who  had  estahlisiied  agencies  in 
.Manitol)a  lost  heavily.  ( )f  the  live  hanks  earliest  to 
enter  the  tield,  three  disniisst^d  theii-  \Vinni|»e<;-  man- 
agers. This  will  indicate  liow  y;rave  were  the  htsses, 
but  not  how  great.  To  know  that,  one  would  need 
for  some  yeai's  to  have  attended  the  regular  hoard 
meetings  of  at  least  seven  different  hanks.  None  of 
these  institutions  were  compelhMl  to  suspend  i)ay- 
ments.  One  advantage  of  branch  banking  is  the 
possibility  under  it  to  spread  and  differentiate  risks  ; 
the  gains  of  a,  bank  and  the  safety  of  its  loaning 
business  as  a  whole  does  not  depend  on  the  ups  and 
downs  of  a  single  comnumity  or  commercial  and 
industrial  grouj).  Having  staked  but  a  part  of  their 
funds  in  Manitoba,  the  banks  passed  through  tlie 
trouble  with  their  entire  resources  lessened,  no  doubt, 
but  by  no  means  destroyed,  and  from  gains  in  the 
P^ast  they  wt're  enabled  to  meet  losses  in  the  West. 
The  only  outwai'd  signs  of  loss  were  lower  dividends, 
reduction  of,  or  smaller  additions  to  rests  and  in 
one  or  two  cases,  reduction  of  capital  stock. 

Between  1882  and  1888  six  of  the  banks  which  arc^ 
still  in  existence,  provided  for  losses  incurred  in  their 
loaning  business  by  reductions  of  cai>ital,  undei- 
authority  of  Parliament,  amounting  to  s4.i»7(), (>()(). 
Although  they  occurred  in  a  time  of  general  trial. 


rl 


I 


liiink  failnres,  Ib8:j-18H0 


;{0.-> 


the  causoH  f»f  tlicHc?  reductions  w<'r('.  as  n  i-ulc.  pecu- 
liar to  the  situations,  mistakes,  or  nuuiai;cnicnt  of 
the  individual  hanks.  To  examine  them  liere  wouhl 
need  in(|uiry  alto^^ether  too  itiirticuhii"  anil  minute.' 


• 


}54'.).— HAN'K    KATLIKKS,    ISS!^    |S8!> 

Ut'(luced  to  its  last  analysis,  the  economic  function 
of  hanking  is  t(t  facilitate  that  exchan};*'  of  commod- 
ities ajj^iiinst  commodities  which  is  the  ess(iice  of 
modern  commercial  cicdit.  The  case,  cheapness  nnd 
thorouf^hness.  the  etliciency.  in  short,  with  which 
that  service  is  jx'rformed  for  other  memhers  of  the 
economic  organization,  is  the  first  ijjreat  point  in  the 
criticism  of  any  hankiui;' system.  The  second  jxtint 
is  the  security  afforded  to  those  who  must  hecome 
creditors  of  the  hanks  in  order  t«»  utilize  their  services. 
Shareholders  are  ohviously  excluded  from  this  class. 
Their  investments  are  conmiercial  ventui'cs.  suhject 
to  commercial  risks.  The  description  applies  only  to 
note  holders,  depositors  and  creditors  on  other  evi- 
dences of  deht  given  hy  hunks  The  security  afforded 
them  is  measured  hy  the  extent  to  which  tlie  ohliga- 
tions  of  the  hanks  ai"e  redeemed  in  full,  a  proportion 
hest  ascertained  hy  comjtuting  the  more  or  less  of 
dehts  which  are  not  ])aid,  and  the  amounts  ultimately 
lost.     Tlu!  data  as  to  such  losses  are  to  he  had  only 

'Tliese  reductions  were: 
Vfiur  AiiKiuiit  of  Kcdiietion 

1881'  Ontario  liank ;*:;,(miO,(i(I()  to  :?l..'i(iu.o(i(i.    15  Vic,  cap.  57. 

i8SL>  Exchanire   \\iu\V  nf  ) 


Yarnioutii. 


S 


:',.')( I. ( (III  to  -jsd.ddii.   (.")  Vic,  cip.  (id. 

ISS5  LiiBauquedii  reu|.ie.  I.ddo.doo  to  l,'J(i(i,d(i(i.    ls.4d  VJc.cip.  8. 

l8S<i  Union  B'k  of  Canada.  i',dO(.l,0(iO  to  l,2dd,ddd.  4!i  Vic,  cap.  r)S. 

IsSli  Hank  of  N.  IJrunswick  l.ddd.odd  to  odd.lnd.  4'.t  Vic,  cap.  ■"><(. 

ISSS  r.a  J'>an(|ii('  Nationale  L'.ddd.oOd  to  l.i'Od.ddd.  .")!  Vic  ,  cap.  48. 


« 


H 


\- 


^m 


i 


'  ii 


'I 


!• 


!t  : 


U: 


ii  I 


ni 


30f; 


77/e  Canadian  JUoikimj  System,  1817-1890 


from  study  of  l)aiik  failures.  Tlio  efficiency  of  the 
Canadinn  system  lias  l)<'en  i-eserved  for  principal 
treatment  in  the  cliapter  next  hut  one.  Facts  rela- 
ting- to  its  security,  on  the  contrary,  must  he  examin(>d 
in  mori'  or  less  close  connection  with  the  conditions 
from  Avhich  they  arise. 

I.  The  first  of  the  events  now  to  Ix^  considered  is 
the  failure  of  the  •'•Exchange  l^ank  of  Canada.""  of 
Montreal,  an  institution  chartered  in  IST'J.  In  August. 
ISTi).  it  was  ohlii>-t'd  to  suspend  i)avment.  but  resumed 


in  November;  s.")( )().(»( mi  were  written  off  its  cajutal 
stock  in  IHSl,  'i'he  dii'cctorate  was  wealthy,  and 
theii'  standing',  combined  with  manipulation  of  the 
stock,  kept  the  shares  of  the  bank  high  in  the  imblic 
esteem.  Within  a  yi'ar  of  the  failure  stock  was  sold 
for  sIT'J  a  share,  i^>ut  the  nuimigement  was  bad,  and 
afti-r  ISSi  it  showed  no  imi»rovement.  In  .\i)i'il,  ISSH, 
the  bank  came  to  the  governmeni  foi"  help.  A  deposit 
of  S'joo.ooo.  bearing-  interest  at  .")  per  cent.,  ami  i)ay- 
able  at  thirty  days"  notice',  was  nuvde  with  the  Ex- 
change ]^ank.  In  May.  sloo.dOO  more  were  granted 
on  the  same  terms,  the  personal  security  of  one  of  the 
directors  of  the  bank,  a  Conservative  senator,  being- 
taken  as  a  guarantee  of  repayment.  Ovei-  one  half 
the  st(H'k  was  then  owned  by  ])rominent  Conservatives. 
The  collapse  o+'  the  Northwest  boom  was  still  troub- 
ling- men"s  thoughts,  and  many  felt  that  the  country 
was  about  to  ex})ei'ience  a  serious  crisis.'  The  crisis 
might  be  precipitated  by  the  sudden  stoppage  of  a 
single  bank,  and  end  in  the  failure  of  several."-'  The 
advances,  the  friends  of  the  Govei'ument  afterwards 


'  Del iiites,  House  of  C'oiiimons,  C'iina<la,   ISs."),    pp.   oS-J,  os;',,  Mr. 
White. 

-76(V?,  1S84,  I).  Kil,  >:ir  Leonard  Tilley. 


Bank  Fitilures,  ISS.'J-ISSO 


;507 


said,  were  made  to  ])revoiit  a  run  on  the  Exchange 
Bank,  and  so  to  ward  off  tlie  ci-isis.  The  otl»er  side 
thought  they  might  well  have  heen  mach'  to  enahle 
friends  of  the  Government  to  escape  from  the  douhle 
liahility  of  tlu^ir  stock.  In  ISSf)  the  Hon.  Edward 
P>Iake  caUed  tiie  concei'u  a  political  hank,  and  an 
example  of  the  disasters  awaiting  a  jtolitical  hank.' 
In  the  four  months  following  the  advances  the 
condition  of  the  hank  grew  worse  and  worse.  Kx- 
cei)t  for  sl'iO.OOO  its  lial)ilities  were  as  high  in  Sep- 
temhei'  as  in  ]\Iai'ch.  More  than  the  cui'rent  rate 
was  i)aid  for  dt^'posits.  money  was  horrowed  in  large 
amounts,  and  used  for  advances  of  the  most  i-eckless 
and  desperate  sort.  The  managing  director  of  the 
hank  ai)pears  to  have  lacked  all  sense  of  responsi- 
hility  or  honor.  With  some  of  his  colleagues  <,)n  the 
hoai'd.  lu'  used  the  funds  in  his  charge  to  manipu- 
late a  hlock  of  1. 000-1. "idO  shares  of  the  hank,  ahout 
one-(]uarter  of  the  whole  stock.  He  I'ntered  other 
unlawful  and  personal  speculations.  ma<le  entries  in 
ohscure  i)arts  of  the  hooks;  aiul  kei)t  jtapers  j)ledging 
the  hank's  credit  in  his  i)rivate  di-awi>r.''  When 
the  haiik  failed  on  the  ir)th  Heptemher,  lSS:i,  he 
owed  it  s'J'iC). O0(t.  When  wanted  in  Decemher  he  was 
not  to  he  found.'  The  total  liahilities  of  the  hank  at 
the  tiviU'  of  suspension  were  ahout  S"^. 480,000.  the 
nominal  value  of  the  assets  s:^.:{l].").'.)07.  The  notes 
foi-  sliSO.:218  then  in  circulation  never  sold, for  nuich 
less  than  ninety  cents  on  the  street:  within  two 
months  the  liquidator  was  ready  to  i)ay  them,  and 
all  presented  were  ultimately  I'edeeined  in  full.    Ui)on 


,  h'^ 


'1 


h 


'Debates,  House  of  (^oniiimns,  ISS").  p.  ;;7S,  Hon.  Ivlward  IJlake. 

-lliid,  ISS."),  {).  lilts,  ^[r.  McMaster. 

^Monetary  Times,  vol.  xvii,  issue  of  the  12th  September,  bS7!>. 


im 


I 


i 


I 


: 


308 


77ie  Canadian  Bankinf/  Sj/sfein,  181T-1890 


the  other  dehts,  after  a  capital  of  s500, (»()()  and  a  rest 
of  !j^80(),000  had  heeu  wiped  out  and  the  douhle  lia- 
bility of  the  shareholders  collected  from  all  who 
could  pay,  only  (30]  per  cent,  was  returned  to  the 
creditors.  Their  loss  of  jjrincipal  was  thus  a  triHe 
less  than  .^(590, OdO:  that  of  the  shareholders,  at  one 
time  and  another,  may  be  estimated  at  from  si. ('»(»(»,. 
()()()  to  §1,800,000.  But  the  shareholders  could  not 
blame  commercial  ccmditions.  defects  of  the  banking 
system,  or  the  hostility  of  their  competitors,  for  the 
loss.  It  was  due  to  shameful  malversation  and  dis- 
rr<jard  of  duty  on  the  part  of  the  management.  The 
government  endeavored  to  establish  a  preferential 
lien,  for  the  collection  of  its  debt,  but  their  suit  was 
lost  because  the  common  law  priority  of  the  Crown 
did  not  exist  in  the  civil  law  of  Quebec.  The  ••Ex- 
change Bank  Liquidation  Account''  still  stands  in 
the  Dominion  Balance  Sheet  for  189J?,  as  an  asset  of 
§i77,Ji37,  the  cost,  less  interest,  of  Sir  Leonard  Til- 
ley's  salvation  of  the  country.  It  is  true  that  while 
the  failure  caused  great  scandal  and  indignatitjn  in 
Canada,  it  started  no  panic.  The  prices  of  bank 
stocks  generally  were  unaffected,  the  course  of  the 
Exchange  Bank,  according  to  the  president  of  the 
Bank  of  Montreal,  having  been  known,  and  its  sus- 
pension discounted.'  The  scandal  was  aired  in  Par- 
liament in  18S4,  and  resolutions  condenniing  the 
advances  to  the  Exchange  Bank  were  moved  in  the 
House  of  Commons  by  prominent  Liberals.  The 
Government  received  full  measure  from  the  country's 
vial  of  wrath,  but  were  sustained  when  it  came  to  a 
vote,  by  5)7  against  GO. 

'Montreal  GazeAte,  ISth  September,  ISS;),  Letter  of  Mr.  Smithers. 


Bank  Failures,  188:5-1889 


309 


II.  The  next  failure  was  that  of  tlie  ••^Maritime 
Bank  of  tlie  Dominion  of  Canada."'  situated  in  tSt. 
John,  X.  B.  It  also  was  chartered  in  I87*i.  In  its 
fir.st  eift-ht  years  it  had  lost  nearly  sfUio.dOO.  the 
prohable  reason  heiny-  that  those  in  control,  in- 
stead of  scatterino;  risks,  preferi-ed  to  make  lOans  en 
bloc.  Its  president  was  describ(Hl  as  a  merchant, 
manufacturer,  politician  and  hanker,  a  man  of  large 
ambition  and  small  capital,  always  ready  to  play 
high,    especially    when    staked    with    tl)e    money  of 


other; 


The  l)ank   was  reorganized    in    lSS:)-4.   put 


in  more  careful  hands,  and  the  paid-u])  ca]>ital  re- 
duced by  (!4  per  cent,  to  s247.(>()n.  In  spite  of  the 
fact  that  large  ])rovincial  and  Dominion  deposits 
were  made  with  the  bank,  its  subsecpient  course  was 
not  i)rosperous.  Jn  1SS7  it  had  accounts  overdrawn 
for  sOiHO.OOO.  of  whicli  sS.'io.dOd  were  against  the  assets 
of  bankrupts.  Advances  *'ar  in  excess  of  its  capital 
were  locked  up  in  a  series  of  lumber  accounts,  which, 
though  under  diffei-ent  names,  were  i-eally  r.gainst  a 
single  concern.  The  bank  became  a  pai'ty  to  kiting 
sterling  bills  of  exchange  in  order  to  sustain  itself. 
AVhen  it  stopped  payment  on  the  Sth  ^Farcdi.  1SS7.  its 
liabilities  were  about  .sl.^-JC.OOO.  The  sin 4.000  of 
notes  in  circulation  were  the  first  (diarge  on  its  assets, 
and  so  far  as  presented  wei-e  jtaid  in  full,  though  only 
after  more  than  two  yeai's  were  <'lapsed.  On  the 
2Sth  February  tlie  Dominion  had  s7o.7:).")  de]iosited 
Avith  the  bank,  the  provinc(^  of  New  Hi-unswick  sSOf),- 
ISO:  each  government  succeeded  in  enforcing  the 
Crown  priority,  and  thus  escaped  practically  all  loss. 
The  other  creditors  have  been  paid  dividends  of  ('.  and 
;}  per  cent.,  and  will  receive,  the  licpiidators  say.  1 
^Monetary   Timet,  vnl.  xiv,  p.  4IS:  vol.  xv,  p.  7:'.l. 


ifl 


;ii 


1'' 

1 

1 

1 

\ 

^1i 

i 

1': 

1 

II 

i 

i^L 


a 


1^1 

«!      if 


II 


!•< 


310  The  Canadian  Bankinrj  Sysfem,  1817-1890 

or  2  per  cent.  more.  Sliould  the  total  dividend 
amount  to  li  percent.,  the  creditors  of  the  bank  will 
have  lost  about  s7.")(i. (»(»()  of  the  ])rincipal  of  their 
claims.  Assuming-  that  the  collection  of  the  double 
liability  was  fairly  successful,  the  shareholders  lost 
by  the  l)ank"s  failure  ami  the  jirevious  reduction  of 
stock,  a  sum  nearei-  a  million  than  s9r)(),(»(i(). 

III.  Through  the  failun^  of  some  of  its  largest 
debtors,  the  Picton  Hank,  of  Pictou,  N.  S..  suffered 
dangerous  lock-ups  between  18S-i  and  188(5.  amount- 
ing to  over  st>:2( ).(«•(>.'  No  dividends  were  paid  after 
January,  1884,  and  in  1880,  '2(»  percent,  of  its  paiil-up 
capital  was  Avritten  off  by  authority  of  Parliamtut. 
(49  A'ic,  cap.  (V2.)  The  next  year  it  became  neces- 
sary to  suspend  i)anking  o])eratioiis.  The  sharehold- 
ers secured  a  permish.Ive  act.  and  in  September.  lSi->7. 
the  barik  being  still  solvent,  they  voluntarily  put  it 
into  li(pii(lation,  jiaid  their  debts  in  full,  and  savt-d 
from  '?()  to  40  per  cent,  of  their  re(luce<l  cajiital 
(^2()0.(»()()). 

IV.  The  Hank  of  London  in  Canada  was  estjtb- 
lished  in  188:}.  After  a  bi'ief  life  of  four  years  it 
suspended  payment  on  lOth  August.  1887.  The  for- 
tuiu's  of  the  hank  wei'e  blighted  by  the  sinister  influ- 
ence of  a  s[)eculative  president.  He  had  drawn 
largely  on  its  rest)urces.  and  had  involved  its  funds 
with  the  affairs  of  an  insolvent  loan  company.  ••Th»^ 
(Mitario  Investment  Association.""  then  under  lii:^ 
control.  On  the  eve  of  comi)leting  arrangements  for 
selling  the  business  of  the  Hank, of  London  to  the 
Hank  of  Toronto,  he  had  decamped  to  the  Tnited 
States.    The  paid-up  capital  of  the  bank  was  s24l .  lol . 

^ Marulitri/  Tones,  vol.  xx,  p.  ll!"). 


.'^';i 


liinik  Failures,  1883-1889 


:n  1 


Some  >^9().0()<>  of  this  was  saved  after  payi.    'iit  of  all 
<lel)ts  in  full. 

\'.  The  li<iui(latioii  of  the  O'liti'al  Hank  of  CaiKula 
was  not  (juite  so  ereditahle.  This  hank  was  another 
young  concern  chartered  in  ISSI^.  It  suspended  pay- 
ment on  the  lOth  Xovenihei-.  It^ST.  and  ceased  a  hnsi- 
ness  whieii.  for  a  yciir  at  least,  had  \)vvn  distincily 
discreditahle.  Tt  jyjaced  stock  in  towns  outside  of 
Toronto  by  ])romisin.i;'  to  estjiblish  hituudies  if  ceitiiin 
amounts  we\;e  subscribed  for.  It  had  pushed  busi- 
ness tending  to  inci-ease  the  Jioti'  circulation.  It  had 
even  j)aid  brokers  for  lu'lp  in  keejiing  out  its  issut  s. 
and  in  order  to  get  money  it  sold  them  certificates  of 
deposit  at  a  discount.  Its  com])aratively  large  (h^- 
posits  were  acquii'ed  by  paying  on*'  oi-  two  per  ci'ut. 
more  than  the  current  rate.  A  few  large  customers. 
a  cli([Ueof  directoi's.  and  certain  brokei's  got  advances 
utterly  out  of  i)ropoi'tion  to  their  credit.  Through 
their  schemes,  and  in  methods  still  more  scandalous 
and  dishonest,  the  cajtital  of  s.'ioo.ooo  nnd  the  pro- 
ceeds of  the  double  liability  to  nearly  an  e([ual 
sum.  were  wholly  sunk.  Note  holders  wei'e  ]iaid  in 
full:  other  creditoi's.  DU.'j  itei'  cent.,  the  loss  thus 
intlictetl  on  the  public  being  alx'Ut  sJ4.:2(')0. 

VI.  The  last  event  of  this  series  was  i\  voluntary 
li(|uidation  rather  than  a  biuik  failure,  but  as  a  l)auk 
'•misfortune"  it  is  most  conveniently  ti'eated  with 
tlie  others. 

The  Federal  J^ank  of  Canada  (originally  cnlled  ilu' 
Superior  Hank)  was  incorporateil  in  \i>l'2.  but  did  ii.»t 
open  its  head  (dlice  in  Toronto  until  1^74.  L'nder 
enterprising  and  ingenious  management  the  cni»ilal 
of  the  bank  was  doubled  in  1S>^*J  S:^  to  sIJ.oiki.hoo. 
In    Julv.    IhS:?.    its   stocdc   sold    at    l.'d.l:    on   the  -Ji'lh 


M 


•    111 


i '.  ■ 

■  1    ■. 

■    IJi    '     , 

>        1 

i 

m 


I   i>f 


:: 


1- 


r^ 


i, 


31; 


77^c  Canadian  nankimj  Si/slcm,  1817-1890 


June  1884,  wlion  the  general  manager  resigned,  it 
l»rouglit  SO.}.  From  tlie  investigation  tlien  made  it 
aiipeared  that  tlie  hank  lield  no  less  than  ('),()()()  shares 
of  its  own  stock.  ]\Iost  of  tiiese  had  heen  seized  as 
additional  seeui-ities  for  advances,  originally  on  over- 
drawn and  uns(>enred  aceonnt.  or  mere  promissory 
notf.  to  the  Connnereial  Loan  and  Stock  Company,  an 
inside  corporation,  which  \v;is  nsed  to  horrow  the 
hank's  fnnds.  eithci-  to  loan  n]t()n  stock  in  the  Fed- 
eral or  pnrchase  it  in  order  to  keep  np  tlie  ])rice.'  The 
scheme,  at  its  hest,  was  a  highly  disrepntahle  evasion 
of  the  i>rohii)ition  in  tlu'  I'ank  Act  against  loaning 
on  l)ank  stocks.  A  run  was  started  on  the  hank  in 
the  last  days  of  June  and  the  first  \ve<>k  in  July.  I>ut 
was  successfully  met  hy  help  of  the  other  hanks,  who 
offered  temporary  advances  for  S!>.()()(i. (»<»(>.  aiul  made 
arrangements  for  ti-ansfers  of  discount  accounts, - 
Under  the  new  manager  ap))oint(Hl.  the  "little 
nuudiine""  through  which  sOOO. ()()()  of  cai)ital  had 
heen  given  fictitious  existence,  was  promptly  wound 
up.  In  1885  authority  was  secured  to  cancel  5,000 
of  the  shares  held  hy  the  hank,  autl  to  reduce  the 
remaining  capital  to  si. 250, 000,  on  account  of  hisses 
from  Michigan  lumher  transactions  and  loans  in 
Manitoha.  (48  and  40  Vic,  cap.  8. )  In  spite  of  such 
drastic  treatment,  the  Federal  Bank  did  not  r(>cover 
its  prosperity,  or  the  full  confidence  ordinarily  ])laced 
hy  the  puhlic  in  its  hanking  institutions.  Bank 
stocks  fell  generally  in  the  autumn  of  1887,  and  the 
Federal  dropped  helow  par.  The  hank  was  thus  dis- 
credited, and  hetween  the  'Mst  Octoher  and  the  25t]i 
Januar}'  its  situation  again  hecame  critical.     It  had 

^  MoueiiU'i/  Times,  \n].  xviii,  pp.  571,  'uf<. 
-Thill,  ]).  57 1 1. 


Bank  Failures,  1883-1889 


313 


been  called  on  to  pay  8t>10,698  of  notes,  and  $1,421.- 
303  of  doiiosits.  a  total  drain  of  !i^  1,632. 085. 

Rei)resentatives  of  the  banks  having  otfioes  in 
Toronto  met  ui>on  the  Federal's  case,  and  examined 
the  condition  of  its  assets.  As  the  resnlt  of  this 
examination  they  offered  to  advance  enouj^h  money 
to  j)ay  off  the  entire  liabilities  of  the  bank,  and  to 
wait  for  repayment  from  the  liipiidation  of  its 
assets,  on  condition  that  tin;  bank  should  ho  v/onnd 
up  with  open  doors.  The  step  was  decided  on  bo- 
cause  the  condition  of  the  bank's  affairs  was  found 
to  be  such  that  its  continuance  in  business  was  not 
possible,  and  because  the  plan  proposed  and  finally 
adopted  would  avoid  the  panic  which  the  Federal's 
suspension,  after  the  uneasiness  due  to  tin;  Central 
and  London  failures,  was  likely  to  cause.  The 
amount  of  the  contribution  agreed  upon  was 
.s2,7()(>. <>()().  By  this  undertaking  they  ran  the  risk 
of  being  forced  to  reduce  their  reserves  to  a  point 
beyond  that  ordinarily  thought  safe.  P>ut  Canadian 
bankers  believe  that  a  resei've  is  for  use  I'ather  than 
disi)lay.  Their  i)rompt  and  courageous  use  of  their 
ready  cash  at  this  juncture,  undoubtedly  prev^ented 
conditions  in  which  thrice  or  four  times  the  amount 
of  their  reserves  would  have  been  needed  to  still 
the  po}>ular  clamor  for  i)ayment.  It  sav«.'d  the 
shareholders  of  the  Federal  bank  from  the  sacri- 
fices of  a  com])ulsory  liquidation,  and  allowed  them 
to  realize  iheir  assets  at  the  most  advantageous 
times,  and  lastly,  it  ju-otected  the  business  of 
Ontario  from  the  costly  derangement  incident  to 
a  banking  panic,  and  a  sudden  contraction  of 
discounts. 


;!i 


:?  ■ 


|. 


I, 


I  ' 


314  The  Canadian  Banking  System,  1817-1890 


He>rc'  ends,  for  the  present,  the  account  of  hank 
failures  in  Canathi.  If  any  conchision  may  he 
drawn  from  tlie  study,  it  is  tiuit  the  disasters  have 
heen  due  to  faults  of  practice,  rather  tlum  (h'fects 
in  tlie  system.  It  is  clear  that  legislation,  scienti- 
fically friuned,  has  not  prevented  poor  man;i<.;"ement. 
bad  manaf^ement,  or  fraud.  Xo  one.  prohahly,  ever 
expected  it  would.  Ft  is  clear  also  that  it  has  uot 
saved  shareholders  from  loss.  A  careful  estimate 
shows  that,  hy  reductions  of  capitjil.  li([uidatif>ns, 
failures,  and  contrihutions  on  the  double  liability, 
shareholders  have  sunic  at  least  st?:{. ()()(). (lOd  in 
Canadian  banking  since  the  first  of  July.  1S(')7. 
Tliis  sum,  more  than  ;?7  per  cent,  of  tlu'  prosmt 
l>aid-ui)  banking  capital,  is  inde])en(h'nt  of  the  losses 
provided  for  out  of  pi'olits.  or  met  by  reductiiju  of 
rests.  The  security  of  a  t;'i'oup  of  banks,  however, 
must  be  judftH'd,  not  by  the  losses  of  their  pi'oju'i- 
etors,  but  by  those  of  theii"  credit(jrs.  We  may  see 
now  how  well  the  Canadian  system  has  minimized 
the  creditors"  i-isks.  Out  of  .')(')  chartered  banks, 
some  time  in  operation  in  Canada  since  the  first  of 
July,  l.S()7,  just  ;58  survive.  Ten  of  those  ^one  be- 
fore havi'  failed.  But  the  total  loss  of  principal 
inflicted   during  twenty-seven  years  on   noteholder, 


del 


)ositoi\  governmen 


t.    or  creditor  whomsoevei-.  ha;' 


f:  i 


not  exceeded  S'J.OOO.OOO.  or  less  than  one  ])ei'  cent, 
of  the  total  liabilities  of  Canadian  banks  on  the 
liUth  (lav  of  last  June. 


CHAPTER  IX 


Tf{E  REVISION  OF  L^OO 


■  t 


?;'">(^. — DK.MAKDS    FOK    UEKOII.M    AND    TIIKIU    CAISKs 

RKKoiiK  the  time  for  rcuewiiig-  tlu'  c-luu'tcis  lor  ;in- 
otlior  ti'ii  years  was  arrivt'd,  criticism  of  tlic  Caiuidiaii 
banking  system  as  amended  in  K^sn  and  i>S8::,  had 
pointed  out  several  unqualified  defects. 

I.  One  of  those  wliicli   most    affected   the  ^-eueral 
public,  and  prompted  tlie  demands  for  refoini  comiii<;- 
from  tluit  (puirter.  was  tlu-  discount  on  tlu'  notes  of  a 
faih'd  bank,   in  tlu;  inferim    between  its  suspension 
and  tlu'  beginning  of  its  liquidation.     Though  by  the 
prior  lien  g-iven  to  note  hohlers.  final  payment  in  full 
was  certain,  it  was  not  always  definite.      If  he  wished 
to  realize  immediately  after  the  failure,  tlu;  last  holder 
of  the  note  during-  its  currency  was   forced  to  submit 
to  a  discount.     Although  the  litpiidators  were  ready 
to  redeem  within  a  month,  the  discount  on  th(>  luites 
of   the  Exchangee  Bank  after   its   failure  rose  as  high 
as  five  or  ten  per  cent.      Redem]>ti()n  of  the   notes  of 
the   ]\Iaritime   Bank,  though    fiiudly  in    full,  was  (h- 
luyed  for  neai-ly  three  years  after  the  failur<'.  and  in 
the  meanwhile  its  issues  sold  for  as  U)W  as  forty  cents 
on  the  dollar.!      In  iiotc^s  of  the  C'eutral  l-5ank  of  Can- 
ada, Americans  near  Sault  Ste.  31arie  found  a  jn-otit- 
able  speculation  by  buying  them  up  after  the  failurs'. 
at  1()  per  cent,  discount. 

'Montreal  Gmette,  iTtli  February,  ISiiu. 


I^y 


111 


s 


■    tf  ■  ir 


l^:.~l)^ 


"I'.   [• 


.».  Sir' 


TF 


m 


i 


'i 


;51(.  'r/ic  ('(imvliioi  lliinhluii  Siislem,  1817-1800 

II.  AiiotluM"  rniisc  of  (•ompltiiiit  wis  tlio  oixTatinn 
of  the  ^liitutr  of  limitiilioiis.  or  tho  law  of  i)r('S(!rip- 
tioii.  upon  the  outshuitliii^-  notes  of  ji  liciuidtitcd  l»ank. 
Tlic  '.vindinj^'-up  iicls  jtiisscd  hy  Pniliiiniont  ordinui-ily 
i"('([iiin'(l  the  li(|nidntors  of  n  hiink  which  had  failed, 
or  deciih'd  to  retire  from  hnsiness.  to  make  all  re;ison- 
al>le  ell'nits  to  cmH  in  and  icdeem  tlie  ontstandinjj^ 
li<ii)ilit ies.  K'eseived  dividends  sufficient  to  cover 
any  undisc]iai't(ed  and  unclaimed  <l«d)ts,  were  recpiired 
to  he  deposited  at  interest  with  some  trustee,  ordinarily 
a  hank.  After  two.  or  three,  or  five,  or  ten  years, 
and  a  month's  notice  in  the  Cnnuda  and  jirnvincial 
(Jazettes.  as  well  as  in  <i  newspa[>er  of  each  place 
where  the  hank  ha<l  <in  agency,  it  was  allowahle  to 
distrihule  the  surplus  of  this  fund,  together  with  the 
accrued  interest,  anionj^-  the  shai'eholders.  TheiU'e- 
foi-wai'd.  hoth  notes  and  otliei-  claims  a^j^ainst  tlic 
hank  were  hari'ed  and  extinguished.  Sucli  a  time 
limit  was  quite  too  hrief.  It  worked  injustice  tothos(^ 
holders  <d"  notes  who  were  unmindful,  or  ignorant  for 
the  time  heino-.  of  tin'  character  and  life  of  the  cur- 
rency in  their  possession.  The  notes  of  a  hank  were 
never  entirely  calle(l  in  hefore  the  limitation  came 
into  effect.  In  ISS'i.  sixteen  y(>ars  aftei-  the  failure 
of  the  P)ank  of  L'i)i)er  Camida.  s4'}.;)(»l  of  its  notes 
wei'e  still  ontstandiiiH".  s;5!>.(»()0  had  heen  redeemed 
by  the  g-ovei-nment  in  the  twidve  years  after  1S7('.' 

III.  Of  a  third  defect  in  the  currency,  some  notice 
was  taken  in  IS(50.  when  Sir  John  Rose  proposed  reg- 
ulations to  make  it  circulate  at  i>ar  in  every  jiart  of 
the  country.  Down  to  1SS1>.  Canadian  hank  notes 
lacked  tliat  quality.  Although  the  hank  was  nMjuired 
to  receive  its  own  notes  at  any  of  its  offices,  it  was 

'Sessional  Pajiers,  Canaila,  1S82,  IdSa. 


'.!« 


Demands  for  Rrfonn  andtlivir  (Jmisrs 


317 


obliged  to  pay  them  only  at  otlices  where  tliey  were 
mado  payable,  one  (»f  such  ollices  heiiij;  always  the 
bank's  i)rineipal  seat  of  business.  Some  banks  dated 
part  of  their  issue  at  branches,  others  did  not.  That 
was  a  mere  <|Uestion  of  bo()k-kee]»in^.  some  mniiii^ers 
desiring  such  a  test  for  the  profits  of  branches  by  cir- 
culation and  others  not  esteeminjj;'  it.  In  any  case, 
the  notes  of  a  bank  without  a  branch  in  the  neigh- 
borhood did  not  circulateat  their  par  value  in  localities 
remote  from  the  otKces  where  they  were  payal)le.  (»r 
in  localities  whose  trade  center  was  different  from 
that  of  the  bank  wiience  they  were  issued.  As  com- 
munication  between  them  became  easier,  as  a  larjjjer 
trade  grew  uj),  and  closer  relations  in  all  ways  were 
established  l)etween  the  eastern,  central  and  western 
provinces,  a  larger  number  of  bank  notes  app<'ared 
in  the  circulation  of  places  distant  fpoin  their  domi- 
cile. Occasion  for  the  discount  for  geograi)hical 
reasons  arose  more  fre(piently,  and  the  annoyances 
from  it  were  rather  aggravated. 

The  public  sens(>  of  tlu^  first  two  defects  in  the  cir- 
culating medium  was  uncbtubtedly  (piickene'l  by  the 
bank  troubles  of  hSS;},  ISS7.  and  ISSS,  and  since  the 
stock  example  of  an  issue  secured  by  bonds  is  ojx'U 
to  none  of  tlie  three  criticisms,  the  desire  of  the  peo- 
ple for  reforn)  was  strengthened  by  their  comparisons 
of  Canadian  bank  notes  with  those  circulating  in  the 
United  States.  In  each  case,  as  the  ^linistei'  <d'  Fin- 
ance remarked  of  the  last,  there  was  "a  well  founded 
desire  that  such  an  anomaly  should  cease. ■"' 

IV.  A  second  lesson,  emphasized  foi'  all  ol)serveis 
by  the  susi)ension  of  two  banks  chai'tered  in  !SS:!. 
was  the  failure  of  the  Bank  Act  to  exact  what  Sir 


:M- 


n 

'I 


P 


i 


'Dobatcs,  nt  supra,   ISlMi,  p.  l'l':;."). 


:J1.s  The  CdHttiliiDi  lliink-inij  Si/s/ein,  ISli-lsDO 

Francis  lliiicks  had  termed  "the  security  of  a  iar^e 
paid-up  caiiilal.""  It  was  too  easy  to  j^et  a  charter 
for  a  pro|iosed  i»aiik.  and  the  re(juireuieut  of  sloo. (»(»(» 
of  paid-up  capital  lieCore  the  Ix'j^innini;"  of  husiness 
.was  too  sli;;iit  a  itarrier  round  tlie  fiehl  of  joint-stock 
hankiu)^  to  prevent  the  entrance  of  specuUitors  ami 
untrust  worthy  adventurers. 

V.  The  he<;innin;^  of  a  movement  on  still  ditferent 
lines  was  what  an  American  ]i<ditician.  s[)eakin<,^  of 
the  revision  of  ISIMI.  would  call  the  first  ^iin  of  the 
camjiai;;!!.  In  the  annual  nieetin;^  of  its  shar(di(»ldei's 
on  the  1st  .June,  iSiS").  Mr.  Smithers,  presich'ut  of  the 
P>ank  of  Montreal.  «;ave  ncnv  expression  to  the  favor 
with  which  the  officers  of  that  institution  hud  long 
rej^arded  the  jilan  to  secure  hank  notes  hy  tlu'  deposit 
of  <;()V(rument  bonds.  Premising  that  his  ilii-ectors 
were  in  accord  with  him.  he  said:  "I  am  iiie]iared  to 
advocate  the  policy  of  puttinj.?  the  hanks  on  the  Amer- 
ican system,  ami  i-ecpiirin^'  them  to  secure  their 
issues  hy  a  de]>osit  of  yovcrnnu'ut  homls.  it  was  not 
l)ressed  at  the  last  revision,  not  hccause  the  Hank  of 
^lontreal  was  not  (piite  ready  for  the  chanj^e.  hut  out 
of  considi'ration  f(M'  the  views  of  other  hankers.  It 
Would  do  away  with  the  necessity  for  the  volumin- 
ous statements,  for.  if  the  safety  of  tlu'  currency  was 
fully  assured,  all  the  statements  i'e(|uired  could  he 
fui'uished  in  half  a  (h)zou  lines,  as  I  hold  that,  when 
the  j^overnment  has  provided  the  country  with  a 
thoroughly  sound  currency,  its  duty  is  discharged.  I 
maintain  that  it  is  the  duty  and  privilege  of  every 
man  to  look  around  and  satisfy  himself  as  to  the 
bank  he  will  deposit  his  money  in.    *  ■•     The 

same  is  true  of  the  shareholder  in  selecting  his  in- 
vestments. 


)  :;| 


J^inciissioH  /'rriTifni;/  I'drliamrn/iiri/  Acliun 


;ii9 


"  '••  ■■•  It  limy  be  said  that  the  pcnplc  of  the  Tuitt'd 
States  arc  l(»(»kiii^^  round  for  a  sulisf itiitr  for  tlic 
National  Haiikiiiy'  Law.  Imt  if  tlicy  ai'c,  it  is  not  l»o- 
caust'  it  lias  not  Itfcn  a  success.  l)Ut  hccausf  the  sup 
ply  of  Ixuuis  is  likely  to  run  out.  a  contingency  wliicji 
is  not  likely  to  arise  in  this  counti'y  for  some  time  to 
conu'.'"'  Ten  days  later  the  project  was  effect ively 
disposed  of.  so  far  as  reason  and  expecliency  were 
concerned,  by  an  edito'iai  in  the  'Toront**  IIVcA'.  pre- 
sumahly  from  the  ]>en  of  I'rofessor  (ioldwin  Smith. 
Tin-  ^'enei'al  nianaj;'er  of  the  Mercdiants'  Hank  of 
C'anada.  Mr,  (ieorye  llaj^iie,  also  answered  it  at  the 
annual  meetinj;-  of  his  hank  on  the  iSth  .lune.- 


I    .. 


i;i 


j.-)!, 


-DISCI  ssioN  ri;i:(i:i)iN(i  ^AlJlJAAlK^•TAl;^  actio.v 


1.  For  a  loiijjjtinie,  no  amount  of  arj^ument  apjieared 
t()  shake  the  faith  of  the  advocates  of  bond  secured 
circulation.      In    ISDO,   for  instance,  the  president  of 

' .Mmictiiri/  'J'iiittK,  vol.   xviii,  p.  loti"). 

'}foneUify  Time»,  vol.  wiii,  |>.  1  lL'7. 

In  his  loply,  how  eviT,  Mi.  Hiiniic  iirovisiuiuilly  siiir^fstcl  as  a 
cure  fur  unsiMiinl  hankiiij:,  rcfiiilatioiis  similar  Id  Sir  linlicil  I'ei'l's 
treatment  of  the  Scoti'Ii  ami  Irish  hanks  in  is|.").  Now  the  [irinci- 
ph'8  nmlerlyintr  I't'ci's  restrictions  of  IM">  were  tiiosc  on  which  ho 
framiMJ  tiie  Hank  Act  of  IM  I.  Tlic  Hank  of  Montreal  wanted  cur- 
rency refiulation  similar  to  tiiat  in  force  in  tlie  cniteii  States.  I!nt 
the  .Natiomil  lUvnk  Act  of  tiiat  country  was  nioilelleii  after  the  "  free 
hankiie.:"  laws  of  ttie  state  of  New  York,  the  iileiitical  .statutes 
that  were  copied  in  drafting'  the  ("anadian  "Act  to  Establish  Free- 
dom of  llankinj.',"  etc.,  of  ls">o.  'I'hat  measure  was  suppoited  in 
the  Montreal  Pilot,  then  the  or^ran  of  Mr.  Francis  llincks,  as  a  stej) 
in  the  direction  of  Sir  Rohert  Peel's  policy.  The  system,  it  was 
urged,  is  "  as  near  in  priiici|)le  a  hank  of  issue  as  the  circumstances 
and  po.sition  of  the  country  will  permit."  Sofaras  it  related  to  the 
currency,  therefore,  Mr.  Hague's  proposal  was  hardly  dilTerent  in 
theory  from  the  plan  which  he  opposed. 


|» 


it. 


320  The  Canadian  Banhing  Si/.xfem,  1817-1890 


i  *  -if  I 


the  Bank  of  Moutroal,  Sir  Donald  Smitli,  pronounced 
the  0]>inion  tliat  tlie  '-true  system  of  bankinj;*  for  this 
country  wouhl  be  very  mucli  that  which  has  worked 
so  well  on  the  othei"  side  <»f  the  line,  that  is,  that 
each  hank  should  guarantee  its  own  circulation."'' 
The  proposal  of  Mr.  Smithers  seems  to  have  been 
advanced  in  the  l)elief  that  its  adoption  would  pre- 
vent the  formation  of  snuiU  weak  banks;  the  attitude 
of  two  of  the  banks  in  1890  is  l;est  explained  by  their 
unwillingness  to  assist  in  securing,  through  the  Bank 
Circulation  Redemi)tion  Fund,  not  their  own  notes, 
but  those  of  other  banks,  especially  of  the  snuvller  or 
weaker  institutions.  The  fund,  as  we  shall  see,  was 
calculated  to  invest  the  notes  of  the  latter  with  j)rac- 
tically  the  same  credit  as  the  public  attached  to  the 
paper  of  the  strongest  or  largest  banks. 

II.  The  newspapers  took  up  the  question  early  in 
1889,  discussing  and  emphasizing  all  the  points  de- 
tailed in  the  preceding  section.  In  order  to  the  ab- 
solute security  of  the  currency,  and  its  circulation  at 
par  all  over  the  country,  some  of  them  favored  the 
introduction  of  the  American  plan.  The  policy  was 
supported  with  particular  insistence  by  the  ]\[ontreal 
Gazette,  in  a  series  of  leadin<>'  articles  apjiearing 
from  time  to  time  in  188'.).  Besides  the  ordinary 
arguments  for  covering  bank  notes  by  bonds  to  their 
full  amount,  the  (lazetle  presented  possible  modifica- 
tions of  the  scheme,  di'scribed  the  device  for  giving 
elasticity  by  means  of  maximum  dei)osits.  advocated 
the  requirement  of  a  minimum  reserve,  dwelt  on  th'» 
financial  advantages  had  by  the  government  under 
the    American   system,    and    argued    that    ••it    was 

MJarliind,  "Banks,  lUinkers  und  Bankiii;.'  in  Canada,"  p.  .'!U7. 


Difti'ttfisinH  Prccf'/lifif/  Parlidt/ioifari/  Art  ion 


:v.>i 


favored  l>y  many  of  tlie  larg-er  banks."'  The  posi- 
tion taken  by  this  journal  was  strongly  op])ose(l.  and 
most  of  its  argunuMits  successfnlly  demolished,  by  a 
nnmber  of  excellent  jonrnals  in  which  another  \\o\v 
of  the  banking  (jnestion  Avas  taken. 

Til.  On  the  IHth  l)ecend)er.  188t^.  a  circular  letter 
was  addressed  by  the  head  of  one  of  the  Ontario 
banks    to    a    nnmber   of    the    other    banks    of    the 


Dominion. 


After    referrinji'    to    the    eauses  ot    the 


criticism  generally  passed  on  the  bank  note  currency, 
the  author  of  the  circular  suggested  that  if  they 
desired  to  retain  their  powers  of  issue,  it  would  be 
expedient  for  the  banks  not  only  to  organize,  but 
also,  toward  disarming  tlieir  critics,  to  prepare 
against  the  time  for  renewal  of  charters  any  ]»ro- 
l)Osals  for  refoi'ming  the  banking  system  upon  which 
they  could  agree.  Then  followed  the  outlines  of 
]>lans  to  keep  bank  notes  at  i>ar.  however  fai-  th(\v 
migl'it  be  from  the  place  of  issue,  and  to  establish  a 
safety  fund,  contributed  from  all  the  banks,  whereby 
to  ensure  i)rompt  and  full  redemption  to  the  holders 
of  notes  of  a  suspended  bank.  At  various  times  in 
18S'.).  most  of  the  banks  in  different  pi'ovinces  com- 
pleted arrangements  to  carry  out  the  tirst  sugges- 
tion. Tlu;  banks  usually  worked  towards  the  pur- 
pose in  twos,  each  engaging  to  ]terform  the  service 
of  redeeming  the  other's  notes  in  its  own  neighbor- 
hood, on  consideration  of  a  like  st>rvic(^  by  the  other 
in  its  district.  On  the  notes  of  banks  who  became 
])arties  to  redemption  agreenu'Uts.  this  siin])le  device 
quite  prevent(Ml  the  discount  for  geogra]ihical  reasons. 
Upon  the  11th  January.  ISi)(>.  the  representatives 
of  the  chartered  banks  met  in  Montreal  and  resolved 

'  \'i<l''  Montreal  (lice/ff.  27tli  XovciiilxT,  1SS!I. 
21 


i  : 


P 


i  3  y 


\. 


1 

;  1 

\i 

\\ 

1^ 

i^ 


m 


;i2-.>  The  Canadian  Bankimj  Si/sicm,  1817-1890 


to  rtM|uest  an  interview  with  the  Hon.  Georjje  E. 
Foster,  D.  C.  L.,  who,  us  Minister  of  Finance  and 
Receiver  (general,  had  cliaige  of  tlie  hanking 
measures  of  the  Government.  Their  reqnest  was 
granted.  On  the  ^oth  the  rei)resentatives  of  twonty- 
fonr  hanks  met  the  Minister  in  Ottawa.  The  minutes 
of  this  meeting,  and  of  the  suhsei^uent  meetings  on 
the  Jltli  and  12th  February,  if  any  were  kept,  luive 
never  been  published',  and  neitlier  from  newspapers 
of  the  day,  nor  from  public  documents,  is  it  possible 
to  learn  just  what  occuiwed  at  them.  It  is  under- 
stood, howevei'.  that  at  the  first  meeting,  the  bankers 
inquired  the  intentions  of  the  (ilovernment  with 
res}»ect  to  the  Bank  Act  revision,  and  that  the 
Minister,  while  refusing  to  make  such  an  announfe- 
ment  at  that  time,  expressed  his  willingness  to  learn 
their  views  on  certain  points.  Among  these  appear 
to  have  biH'U  the  (questions: 

[(()  of  making  the  Bank  Act  a  i)ernianent  statute, 
and  thus  avoiding  a  revision  every  decade: 

(/>)  of  preventing  the  discount  on  the  current  notes 
of  a  solvent  but  distant  bank: 

{(')  of  preventing  any  discount  whatsoever  on  the 
notes  of  a  bank,  whether  it  be  solvent,  awaiting 
liquidation,  or  liciuidated,  or  in  other  words.  (»f 
impi'oving  the  security  of  bank  notes  : 

{(I)  of  further  limiting  its  powers  of  circulation  to 
(50  or  70  per  cent,  of  (>ach  bi.iik's  i)aid-up  cai)ital.  or 
to  the  average  amount  of  notes  outstanding  during 
the  three  years  jn-eceding  : 

(r)  of  fixing  the  minimum  proportion  which  tlie 
cash  reserve  of  a  bank  shall  bear  to  its  liabilities; 
and 

( /")  of  recpiiring  a  larger  paid-up  capital  for  new 
banks. 


Discussion  Preceding  Parliamenfary  Action  323 

Til  ref^ard  to  the  second  point  (/>).  tb.o  Ijankers 
remarked  tlie  arrangements  already  made  for  that 
pui'iiose,  and  expressed  a  wisli  that  the  Bank  Act 
sliouhl  re(|nire  every  hank,  on  pain  of  forfeiting  its 
eliarter.  to  make  arrangements  for  the  redemption  of 
its  notes  at  par,  in  tlie  commercial  center  of  each 
province.  To  ohlige  each  bank,  after  the  American 
plan,  to  receive  at  par  tlie  notes  of  other  hanks  of 
the  system,  would  be  unjust,  for  the  duty  of  redemj)- 
tion  ought  t<^  fall,  not  upon  its  competitors,  but  upon 
the  bank  wlmh  gains  from  the  circulation.  As  to 
the  last  (  /■).  in  common  with  the  rest  of  the  country, 
they  thought  that  more  substantial  guarantee  should 
be  required  from  bank  promoters.  To  the  fourth  id), 
that  of  further  limiting  the  powers  of  circulation, 
they  probably  c)bjected.  Among  those  represented 
were  many  banks  with  an  active  business  of  the  sort 
whit'li  re(piires  large,  though  fluctuating  amounts  of 
curreney.  and  for  them  the  restriction  would  work 
hardship.  Then.  too.  were  they  to  i)e  restricted  to 
the  average  of  the  past  three  years,  many  banks 
would  be  disabled  for  meeting  the  periodical  expan- 
sion, and  obliged  to  close  some  of  their  agencies. 
The  first  ])oint  was  a  matter  of  detail,  and  judging 
from  the  bill  he  brought  down  was  soon  rejected  by 
the  Minister  himself. 

The  question  of  requiring  a  lixed  reserve  was  dis- 
cussed in  connection  with  increased  security.  So 
far.  the  Government  had  giv(ni  no  indications  of  a 
purpose  at  this  revision  to  require  deposits  of  bonds 
against  the  note  issue.  But  as  everyone  afterwards 
learned,  Mr.  Foster  was  strongly  in  favor  of  obliging 
each  bank  to  hold  a  sum  of  specie  and  Dominion  notes 
which  should  never  be  less  than  10   per  cent,  of  the 


\\ 


J  ^ 


11 


9 


> 


¥ 


#1 


li 


3-^4  77ie  Canadian  Bankin^j  System,  1817-1890 

amount  of  its  debts.  Newspaper  writers  had  favored 
the  proposal  as  likely  to  keep  such  a  stock  of  specie 
in  the  bank,  that,  in  case  it  should  fail,  there  would 
be  still  enough  foi-  the  redenii)tion  of  notes  as  fast  as 
they  niif^ht  come  in.  The  rule  of  a  fixed  reserve  had 
been  adopted  by  the  United  States,  and  a  number  of 
the  great  European  banks  were  subject  to  restrictions 
with  respect  to  the  proportion  of  specie  held  a<;ainst 
outstanding  notes.  For  a  long  time,  moreover,  four 
or  five  of  the  Canadian  banks  had  incurred  just  criti- 
cism for  allowing  their  reserves,  not  merely  of  money, 
but  also  of  the  more  liquid  assets,  to  remain  below 
the  point  which,  from  the  practice  of  other  banks, 
seemed  safe  or  prudent. 

We  know  that  the  same  ai'guments  against  the 
measure  as  convinced  Sir  Francis  Hincks  twenty 
years  before,  were  presented  to  Mr.  Foster.'  The 
bankers*  case  was  strengthened  by  leference  to  the 
exjterience  of  the  American  banks  with  such  a 
requirement  since  1^70.  They  could  jioint  to  tlie 
repeated  violation  of  the  law  to  which  the  national 
banks  had  been  forced,  and  at  which  the  authorities 
could  only  connive.  They  could  show  how  it  induced 
extreme  fluctuations  in  the  interest  rate  at  the  finan- 
cial centers,  how  it  hampered  that  annual  westward 
movement  of  currency  on  which  Americans  chiefly 
relied  for  elasticity  in  their  money  system,  how  it 
crippled  the  powers  of  the  banks  at  critical  moments, 
and  caused  gi-eater  instability  in  the  organization  of 
credit.  That  the  reserve  requirement  had  foi'ced 
some  American  bankers  to  keep  a  provision  for  their 
liabilities  approximately  adequate,  would  nowise  have 

Mieor^e  Ilajxue,  "  Hank  Reserves,"  Journal  of  the  Viiintiiiaii 
Bankers'  Assocudioii,  vol.  i,  p.  I117. 


Disciiftsion  Prcrpilinri  P(irli(niien/i(ri/  Actio)i 


.Vi?>' 


(laiiiaj>('(l  the  Canadian  argumonts.  Tho  American 
banks  were  local,  imnierons  and  c()ini)aratively 
small  :  in  not  a  few  cases,  eitlier  the  desire  or  ability 
to  carry  on  sonnd  l)ankinj>-  was  correspondingiy 
slight.  In  framing  tlu>  National  l>ank  Act.  the 
elasticity  of  the  cui-rency  had  been  sacrificed  for  its 
security,  the  establishment  of  a  scientific  banking 
system  fm-  tlie  success  of  a  financial  expedient.  That 
the  fixed  leserve  was  of  (inalified  benefit  under  one 
system,  was  no  reason  for  transferring  it  to  another, 
diffei'ent  in  traditions.  ])rinciple  and  i)iactice. 

In  sul)se(iuei)t  contention  against  the  proj^osal  of 
the  Minister  of  Finance,  the  bankers  urged  that  it 
was  jx'culiarly  unsuited  to  Canadian  conditions.  In 
Canada  the  customer  is  exi)ected  to  kt  ij)  his  account 
with  but  one  bank.  At  the  beginning  of  his  year 
he  makes  a  confidential  exhibit  of  his  financial  con- 
dition, and  obtains  a  '-line  of  credit."  /.  c.  the  bank's 
assurance  that  up  to  the  amount  fixed,  his  ])osition 
remaining  satisfactory,  it  Avill  find  him  in  funds  as 
ihcij  ((re  iiccdt'd.  It  frotiuentiy  hai)pens  that  at  no 
time  in  the  year  does  the  bori'ower  avail  himself  of 
the  whole  of  his  credit.  I'ut  the  duty  --to  take  care 
of  its  customers,""  places  the  bank  under  large  obli- 
gations to  advance  money  at  times  which  it  cannot 
exactly  forecast.  Kxce])tional  conditions  of  trade, 
unusually  late  opening  of  navigation,  stiingency  in 
the  money  market,  or  a  variety  of  otluM-  complica- 
tions, often  caus<'  large  groups  of  customers  to  need 
the  entire  amount  of  their  credits,  and  sometimes  a 
little  more,  to  cai'ry  tliem  thiough.  Or  again,  pro- 
duce buyers,  grain  shippei's.  farmers  and  daii'ymen 
require  of  the  bank  enjoying  theii-  custom  lai-ger 
advances    at   one    season    than    at    another,    and    in 


1  • 


f  i:;; 


(      ■  :  ! 


Il 


rl 


'-.  i 


I  ' 


.>!■ 


326 


The  t'aniidian  ISankiiKj  System,  1 817-1 8i)() 


different  years  amounts  which  vary  according  to 
the  success  of  tlie  season's  work.  Or  once  more,  as 
happened  at  the  time  of  the  i^Y'dera!  Hank's  difficul- 
ties, it  sometimes  hecomes  desirahle,  nay  necessary, 
to  make  sudden  and  heavy  outhiys  of  hard  casli  in 
order  to  avert  a  serious  panic. 

Under  the  law  of  IS8(»,  all  tliese  continj^encies 
could  be  met  by  the  hanks  witliout  other  disturb- 
ance or  evil  tlian  a  temporary  i-eduction  of  their 
reserves  to  a  point  comparatively  low.  Hut  with 
the  requirement  of  a  minimum  reserve  a  bank  might 
be  obliged  to  look  out  for  its  cash  and  let  the  customer 
go  to  the  wall.  It  would  be  forced  to  hold  a  useless 
amount  of  money  during  nine  months  of  the  ycai'. 
or  foi't'go  accommodating  during  three  months  tho 
agricultural  industries  relying  on  its  suppoi't.  And 
in  times  of  imi)ending  trouble,  the  banks  would  have 
to  clioose  from  the  double  dilemma,  to  take  the  ^visc 
and  courageous  course  of  forestalling  difficulty,  and 
delil)er;itely  break  the  law;  or,  on  the  other  hand,  to 
maintain  their  reserves  and  endure,  with  Mahometan 
indifference,  the  harm  needlessly  suffered  by  them- 
selves and  by  the  country. 

Such  were  the  arguments  used  by  the  bankers 
against  an  arbitrary  fixed  reserve.  As  a  betttn- 
scheme,  they  proposed  the  formation  of  a  safety 
fund,  under  regulations  very  like  those  ultimately 
adopted  by  the  government. 

Hut  Mr.  Foster  was  not  convinced  by  their  argu- 
ments. The  representatives  of  the  chartered  banks 
then  appealed  to  the  Privy  Council  for  a  hearing. 
This  was  accorded,  and  on  the  22d  February,  the 
eighteen  members  of  the  Government  assembled  to 
be  addressed  by  the  representatives  of  the  chai'tered 


lifif'onns  Adiipted  (nj  Pttrliainoit 


■.Vil 


'Tlie  Week,  Toronto,  J'.ith  Si-ptemher,  IS".*:;,  "A  Hit  of  Ciina-liim 
History."  An  account  of  tiie  HrLMinient  iH'fore  the  Privy  Council 
l)y  J.  T.  P.  I\.,  a  Maiil'ax  hank  niana^'er. 


■i 


%.[ . 


ii,: 


bnnks,  for  wlioin  i[ossrs.  fieo.  Ifajj^iU'.  V>.  K.  Walker, 
and  'IMiomas  Fyslie  acted  as  s]»okesiiien,  tlic  burden 
of  tlie  ar'^'unient  beini^;  sustained  by  Mr.  Walker.' 
( )nee  ayain,  tlieir  case  aj^ainst  an  arbitrary  reserve 
was  arj^ued.  and  at  this  trial  the  bankers  won. 
The  resistance  they  had  offered  to  the  measure  was 
earnest,  strenuous,  united.  It  may  have  been  selfish. 
but  it  was  a  case  whei-e  the  interest  of  the  i)anks 
was  that  of  the  ])eoi)le.  Defeated  in  the  Council 
Cluunbei'.  tiiey  would,  no  doubt,  have  raised  the 
issue  in  Parliament,  fouo-ht  it  throu,i;h  the  press,  and 
carried  it  before  the  country.  Foi'tuiuitely,  however, 
the  banks  had  no  need  to  use  their  excellent  orj^an- 
izatit)n  and  wide  influence  in  a  general  election.  Sir 
John  ^lacdonald,  and  his  colleaj;iU's.  adopted  tlu; 
views  presented  by  the  bankers,  and  the  bill  which 
^Ir.  Foster  projjosed  to  the  ilouse  of  Commons  on 
the  2(>th  AFarch.  1S!)0,  contained  no  mention  of  a  fixed 
reserve. 


m 


i.y.1. — REFOHMS    APOPTEl)    15V    l'Al{LIAMENT 

The  debate  upon  this  bankino-  measure  forms  (tue 
of  the  most  admirable  chapters  in  the  history  of 
Canadian  legislation.  The  description  noway  implies 
that  former  discussions  in  th<'  House  of  Commons 
were  marred  by  extreme  iguoi'ance  or  excessive  }tar- 
tisanshij):  since  the  ^Jominion  Parliiiment  first  met. 
its  action  upon  matters  i-elatino-  to  banking  has  been 
open  to  such  criticism.  But  now  a,  bill,  to  whicli 
long  study  and  the  attention  of  the  ablest  experts  in 


1 


Is 


Hv'  i 


-ili 


I  i 


I 


I  ft 


¥ 


■ 


S 


i  , 
It  , 


II 


328 


The  Canadian  lianhiwi  Si/s/eiii,  1817-1800 


Ceanada  liad  ali'eatly  boon  given,  was  j>resent('(l  to 
a  House  ('oiiii)rising-  many  of  tlio  first  men  of  the 
country  in  law,  commerce,  and  public  life.  Using 
all  the  resources  of  their  rich  oxju'rience  and  excel- 
lent theoretical  ('(luipinent.  they  took  up  the  (picstion 
without  il  trace  of  party  feeling,  and  earnestly,  ably, 
thoroughly  woi-ked  to  bring  the  Bank  Act  as  near 
as  might  be  to  the  perfection  of  a  scientific  idt'al. 

As  he  presented  tlie  bill  the  ^linister  of  Fin<mc(^ 
reviewed  the  banking  legislation  in  force  at  different 
times  since  18(57,  and  outlined  the  objections  held  by 
the  (lovernment  to  the  several  plans  suggested  for  the 
revision.  The  first,  for  the  Dominion  to  assunu'  the 
whole  of  the  circulation,  involved  with  the  duty  of 
redemption,  resj)onsibilities  too  diflrtcult,  delicate  and 
dangei"(nis.  The  second,  for  the  govei'ument  to 
guarantee  the  circulation  to  the  country,  require  the 
banks  to  deposit  debentures  with  them  for  a  certain 
percentage  of  their  issues,  and  to  retain  the  fii'st  lien 
against  their  assets.  Avould  place  the  government 
under  a  heavy  contingent  liability,  which  they  might 
not  at  all  times  be  able  to  meet.  The  thiid  ])lan.  to 
retjuire  bond  and  security  for  tlie  whole  circulation, 
was  iiu'Xpedient:  it  would  i-educe  tlie  capital  used 
for  the  progress  and  development  of  the  counti'y. 
The  fourth  ])lan,  the  plan  which  the  Government  had 
adopted,   was   to   keep  tlu'   existing  system,   but    to 

tions  and  difficulties,  and 


>1' 


M< 


establish  new  safeguards.' 

The  fate  of  the  proposal  for  a  fixed  resei-ve  was 
shared  to  some  extent  by  two  other  improvements 
suggesttMl  by  the  ^Minister  of  Finance.  They  were 
severelv  criticised  in   Parliament,   and  either   with- 


Dehiites  (if  tlie  Ilmiise  of  ("omnions,  Canad.a,  is'.in,  \> 


et  seq. 


,Jt 


!i 


Jif/onns  Adopted  by  rarlidi/ioi/ 


•M9 


drawn  or  modified.  Tho  one  withdrawn  was  a 
project  for  an  audit  system,  not  of  the  government — 
l»ut   vet  eomitulsorv — an  audit  of  the  shareholders. 

L  It, 

'J'he  maeliineTv  was  descrihed  by  Mr.  Foster  thus: 
•  The  sharehoUh'rs  shall,  at  their  annual  meeting', 
elect  two  or  more  auditors:  those  auditors  shall, 
during  the  year,  have  the  opportunities  Avhich  are 
necessary  for  an  auditing  of  all  the  accounts  and  all 
statements:  that  they  shall  ])resent  this  report  and 
their  audit  of  the  directoi-'s  report  at  the  yearly 
meeting,  and  that  a  coi)y  of  this  shall  he  lodged  with 
the  ]Minist(M'  of  Finance  and  lleeeiver  (Jenei-al."' 
Against  this  it  was  successfully  objected  that  it  is 
impracticable  foi-  an  auditor  to  ascertain  the  value 
and  character  of  a  bank's  discounts,  that  his  inspec- 
tion })rovides  no  efK<'ient  check,  that  the  public  may 
be  lulled  into  secui'ity  by  unjustified  faith  in  the 
reliability  of  the  auditor's  statement,  that  inspet^tion 
is  a  question  for  a  bank's  administi'ation.  and  not  for 
the  govei'ument.  and  that  the  audit  was  an  answer 
to  no  general  demand. 

1.  The  modified  clause  origiiuilly  required  from 
each  bank  an  annual  I'eturn  of  dividends  unpaid  for 
five  years,  or  balances  due  to  whomsoever  in  i'es])ect 
to  which  no  transaction  had  occurred,  or  on  which 
no  interest  had  b.^en  paid  during  the  t\\v  years  pi'e- 
ccding.  The  statement  was  to  set  forth  the  name 
and  hist  known  adth-ess  of  the  shareholder  or  credi- 
tor, the  amount  due  and  the  date  and  agency  at 
which  the  last  transaction  took  place.  Dividends 
unpaid  and  balances  unclaimed  for  three  yeai's  after 
the  first  report  on  them,  were  to  be  paid  to  the  [Min- 
ister of  Finance  for  the  public  uses  of  Canada,  sub- 
ject, however,  to  the  right  of  a  {)erson  establishing 


I  I 


I' 

r 
1 


iy 


3;J0  Tint  Canitilian  liankiny  Si/.s/em,  1817-1890 


his  claim  to  the  satisfaction  of  the  Treasury  Hoard, 
to  Ik"  rt'])ai(l  the  i)riiici])al  of  the  siiin  due  him.  and, 
in  fast'  it  wore  jiayablc  l)y  tlic  hank,  the  interest 
tlicreon  at  H  per  cent,  for  not  more  than  six  years 
after  tlie  transfer  of  the  ajuount  from  the  hank  to 
the  government' 

The  argument  foi-  tlie  intro<hiction  of  the  ])rovisioa 
had  heeii  skillfully  and  stronji;]y  prepared  by  a  mem- 
ber of  the  i)ermanent  staff  of  tlie  I'Mnance  Dejiait- 
ment.  It  was  shown  that  in  India,  the  I'arliadoes 
and  some  of  tlie  Australian  colonies.  iinclaime(l  bal- 
ances in  certain  cases  <:,()  to  the  state.  hividends  of 
the  Hank  of  Knuland  uiudainied  for  ten  vears  are 
ai)plied  to  the  ]»ayment  of  the  national  debt.  In  the 
Cape  of  (Jood  Hope  Colony  the  law  was  alpiosl 
identical  with  that  ]»roposed.  The  [Montreal  Hoard 
of  Trade  had  adopted  resolutions  in  April.  iSS'.J. 
calling-  for  a  return  to  the  ^-overnment  of  unclaimi'd 
debts  owed  by  trustees  and  othei'  de])ositors.  It  may 
have  l)een  a  i)oi)ular  notion  that  the  banks  held  vast 
sums  which  they  never  expected  to  pay.  because  the 
existence  of  the  debts  bein^'  for<;(>tten  oi'  unknown, 
no  one  would  come  to  collect  them.  The  (government 
certainly  believed  that  the  heirs  of  persons  who  wercj 
moved  away  from  the  jilace  where  they  nuule  the 
deposits  or  subscribed  to  stock,  were  often  prevented 
from  enforcinj^'  their  rights  by  io-noi-ance  of  their 
existence.  As  a  matter  of  fact,  page  after  i)age  of 
accounts  in  tlie  bank  ledgers  show  balances  ranginjif 
from  one  cent  to  ten  dollars,  with  the  majority  of 
sums  less  than  two  dollars.  Every  effort  to  close 
them  up  having"  been  unsuccessful,  the  banks  were 
obliged  to  cany  forward  the  accounts  from  folio  to 

'  I'.ill  No.  r_*7.  ISiK),  An  Act  tespectiiifi  Banks  and  Bankinir,  S!»  d-W). 


1 


lioforiDs  Ailojtlcd  hii  I'lii'lidiiii'iit 


X.W 


folio  in  order  to  luilaiif*'  tlic  hooks.  Ah  dohts  due  to 
custoincrs  or  ])roiirit'tors.  no  hiuik  would  have  djuc"! 
to  i»U'jiil  tlu'  statute  of  limitations  against  just  ealls 
for  i)ayinent  <»f  tliese  l)alan('es.  'i'lic  entire  indel»ted- 
ness  of  tlie  cliartered  banks,  either  on  account  of 
unpaid    dividends   or   unclaimed    halances.  was  only 

.s;}()(),:)2;{  in  isdi.' 

The  phiii  of  the  (Jovernment  was  rathei-  r(Mi<;hly 
welcomed.  It  was  ojjposed  as  a  scheme  to  alter  the 
devolution  of  ix'rsonul  pro|)ei'ty  and  an  invasion  of 
the  ri<;hts  of  jn'ovinces.^  But  Sir  .lohn  'riiompsnii 
(h'fended  its  constitutionality  hy  the  same  princijilcs 
as  were  hiter  ajtproved  hy  the  Judicial  Conmiittcc 
of  th(^  Privy  ('ouncil  in  Tennaiit  rs.  tin-  I'liion  l>ank.' 
Otliers  insisted  that  the  l)anks  were  j^-ood  eiiou;;!! 
trust<'es  of  the  money,  and  that  tlu-re  was  no  reason 
for  the  transfer  to  tlie  HX)vernnient.  Save  the 
observance  of  fortM^'ii  precedents,  all  hut  the  fiscal 
purposes  of  the  clause  could  he  y^ained  hy  simply 
r(Miuiring  ea(  a  hank  to  repoi't  to  tlie  j^^overnment  hy 
the  2(>th  January  in  each  year,  the  amount  of  un- 
I)aid  dividends  and  unclaimed  balances  with  resjiect 
to  Avhic'h  no  transaction  has  occurrecl.  oi-  on  which 
no  interest  has  been  ]taid  dnrinj;-  tin;  Hve  years  pre- 
cediu}^.  This  view  way  accej»te(l.  and  the  clause. 
Avhile  still  recjuirinjj^  complete  details.  Avas  amended 
to  conform  to  it.      (.*>:)  Vic.  cap.  \\\ .  ^  SS.  l-H.) 

With  the  exception  of  four  or  five  admirers  of  the 
American   banking-   and    currency     legislation.'   the 

'This  exclmles  ?l-lii,7n"i.  owimI  'ny  two  cliartiTc  1  s:i\iiiL'^  l)ank.s  in 
the  proviiu'e  of  Qiiehec,  luid  it  iiichnles  the  s7">,-(lii  invccl  hy  tiie 
Bank  of  Montreal. 

-Dehates  of  the  House  of  Commons,  Canada,  p.  IWH;,  iJemarks  of 
Mr.  Edward  Blake. 

'Cf.  Journal  of  the  CanailiKn  /tankers'  Ats<iriiiti</ii,  vol.  i,  |>.  L'UI. 

*Mr.  White,  Cardwell,  hoped  that  hanks  securing.'  circwlation   hy 


i^ 


it. 


l;    i 


ni^  IS 


^1 


'hi 


M-l 


rill'  ('iiniiilinn  /iaid-inf/  Si/sfem,  1817-1890 


mt'mbrrs  of  tlic  Ifoiisc  of  Coininons  did  not  object 
so  strriiiioiisly  lo  tlic  other  liaiikiii^'  proposnls  of  tho 
( iovenimciit. 

Tin-  piiiiciiijil  lofurni.  chief  by  reason  of  its  novelty, 
etlicacy  and  conse(|iiences.  was  th(>  formation  of  tho 
I'ank  ( 'ii'ciihitittii  Kedemption  Fund,  hy  which  to 
;;iiaraiitee  t  lie  ])aynient  of  the  notes  of  any  failed  hunk 
witliiii  sixty  (hiys  of  its  suspension,  and  with  interest  at 
('»  per  cent,  per  annnin  from  tlie  (hiy  of  failure  to  the 
day  of  redemption.  This  fund,  whicdi  first  reached  its 
normal  amount  in  July.  iSHij.  was  contril)uted  hy  all 
the  hanks,  eacii  depositinjj^  with  the  Minister  of 
Finance  before  the  l.")th  .Jul v.  ISOI.  a  sum  of  monev 


ei 


jual   t 


o     4 


)  I. 


]ter  cent,  of  the  average  amount  of  its 


notes  in  cii'culation  during-  tlie  precediuj^"  twelve 
months,  and  siudi  further  sum  before  the  IHth  .July, 
l>st)y.  as  was  necessary  to  make  the  total  contribution 
of  each  bank  ecjual  to  o  jier  cent,  of  the  avei-ar 
amount  of  its  noti-s  in  circulation  durinjj^  the  twel 
months  pr(>cedinK  the  last  date  named.  The  jiurpose 
of  the  fund,  in  bi'ief.  is  wlioUy  to  prevent  discount 
upon  bank  notes,  whatevei"  the  condition  of  the  bank 
which  issued  them:  that  is.  to  make  the  security  of 
the  Canadian  curicncy  indisputable,  permanent.com- 

•  li'posits  iif  Doiuiiiiim  huiuls  winilil  l>t' exeiiiiitt'd  from  tli(M-i'(|uire- 
nieiits  (if  the  I'.iuik  Ciroiilation  Uedemptioii  Fniul.     fhiil,  :!,S17. 

Mr.  Casey,  West  Kltfin.  moved  "  tliat  tlu>  jrovcrnineiit  slioidd 
issiu-  or  j.'iiaraiiteti  the  ali.soliitt^  soimdiu'SH  of  all  iiajier  currency 
issued  or  ciriMilatt'd  as  money."  p.  |Si». 

Sir  l>onaid  Sinitli,  Montreal,  wislied.  a  "  llioiouiihly  secured  cur- 
rency," !>.  I'.SL'S.  Tliis  remark  should  he  read  in  conni'ction  witli  liis 
speech  a.s  president  to  the  shareholders  of  the  Hank  of  Montreal  in 
June,  Kiipr<(,  ;L'0. 

Mr.  llesson.  North  Perth,  lielievinir  tliat  no  security  is  as  satis- 
factory to  the  peoiile  as  that  of  the  i^overnment,  wanted  a  national 
currency,  p.  ',]>>'.\S. 


Jii'/onns  Adofih'il  bji  Pdrliiinimf 


333 


plete.     The  means  arc  ln'st  dcscrilx'd  in  tin-  ciiicfMl 
lan^uaK'c  <>f  the  act  itself: 

t-T):;.  Tlio  paynitMit  (if  tlic  notes  issued  or  le-isismMl  l)y  tlif  Imnk 
and  intended  fur  circMlaiion,  and  tlien  in  circnlMtidn,  toL'etlHT  witit 
any  Inteiest  I'aid  oi  i>a\*sdile  tlu'icon  iih  licreinafler  proN  idcd,  sliall 
lie  the  (ii'Ht  diar^e  n|>()n  llie  assets  nf  the  lianli  in  case  (if  its  insol- 
vency;      *        *        * 

^")l.  (4)  "Tlie  Hank  Circidation  Redemption  Fninl."  *  *  »  slmll 
l)e  hell!  for  the  following'  pnrpoHe,  and  for  no  otlier,  namely:  In 
the  event  of  tlie  .siisiieriHion  hy  tlie  liank  of  luiyinent  in  speeie  or 
Dominion  notes  of  any  of  its  lial>ilities  as  tiiey  i.ecrne,  U'V  the  pay- 
ment of  the  notes  tlien  issned  or  re-issned  hy  sneh  l>ank  and  in- 
tended for  circnlation,  and  tlien  ineircnlation,  ami  interest  therenn; 
and  the  Minister  of  Finance  and  Ueceiver-lieneral  shall,  with 
rcHpect  to  all  notes  paid  out  of  the  said  fnnd,  have  the  same  lijjhts 
as  any  other  holder  of  the  notes  tif  the  hank: 

('i)  Tlie  fund  shall  hear  interest  at  the  rate  of  three  per  cent,  per 
annnm,  and  it  sliall  he  adjusted  as  soon  as  possihle  after  the  thirtieth 
ilay  of  June  in  each  year,  in  such  a  way  as  to  make  the  amount  at 
the  credit  of  each  hank  contrihutin;^'  thereto,  unless  herein  other- 
wise specially  provided,  e(|ual  to  (i\e  percent,  of  the  average  nfite 
circulation  of  such  hank  durin<:  the  then  next  preiediiii:  twelve 
months: 

(ti)  The  average  note  circulation  of  a  hank  during' any  period  shall 
he  iletermined  from  the  avera>:e  of  the  amounted'  its  nntes  in  circu- 
lation, as  shown  hy  the  monthly  returns  f(ir  su(di  jierii'd  made  hy 
the  hank  to  the  Minister  of  Finance  and  l!eceiver-Ciencral,  and 
where,  in  any  return,  the  jzri'atest  amount  of  notes  in  circulation 
at  any  time  durinj:  the  month  is  jiiveu,  such  amount  shall,  for  the 
purposes  of  this  section,  he  taken  to  he  the  amount  nl'  the  notes  (  f 
the  hank  in  circulation  durintr  the  nujiith  to  which  su(di  retiun 
relates: 

(7)  In  the  event  of  the  siisjiension  hy  the  hank  of  ])aynient  in 
specie  or  Dominion  iidfes  of  any  of  its  liahilities  as  thev  accrue, 
the  notes  of  such  hank,  issued  or  re-issued  tind  intendeii  rorcircula- 
tion,  and  then  in  circulation,  shall  hear  interest  at  the  late  of  six  jiei 
cent,  per  annum,  from  the  day  of  such  suspension  to  siudi  day  as  is 
named  h_.  tlu'  directurs  or  tiy  the  li(|uidator.  receiver,  assijjinee  or 
otlier  ])roper  ofUcial.  for  the  payment  thereof, — of  \vhi<'h  day  notice 
shall  Vie  K'ven  hy  advertisement  for  at  least  three  da>s  in  a  news- 
paper pulilisheil  in  the  place  in  which  the  head  dtlice  of  the  liank 
is  situate;  hut  in  case  any  notes  preseiiteil  for  jiaynient  on  or  after 
any  day  named  for  payment  thereof  are  not  ]iaid,  all  notes  tlu-n 


j  F 


1 


I 


(1 
I. 


II 


w 


334 


The  (\madian  JJankitif/  Sijslcm,  1817-1890 


unpaid  ami  in  nircnlation  sliall  continne  to  bear  interest  to  such 
fiirtlier  day  as  is  nannMl  tor  payment  tliert'of,— of  wliicii  day  notice 
shall  he  t:iven  in  manner  ahove  providetl:  Provided  ah^ays,  that  in 
case  of  failuie  (pii  the  part  of  the  directors  of  the  hank,  or  of  the 
ii(|iiidator,  receiver,  assignee  or  otlier  pro|)i'r  otlicial,  to  make 
ariaiiirements  within  two  mimths  from  the  day  of  suspension  of 
!  ayment  hy  the  lends  as  aforesaid  for  the  payrnentof  all  of  its  notes 
ami  interest  thereon,  the  Minister  of  Finance  an<l  Ueceiver-Oeneral 
may  thereupon  nuike  arraufjements  for  the  payment  of  th"  notes 
remaining  uni>aid,  and  all  iiUerest  thereon,  out  of  the  said  fund, 
a;iil  shall  ^'ivc  such  notice  of  such  payment  as  he  thinks  expedient, 
an<l  on  the  day  named  hy  him  for  sncli  jiayment  ail  interest  on 
sucli  notes  shall  cease,  anythini:  herein  contained  to  the  contrary 
notwithstanding;;  hut  nothing  herein  contained  shall  he  construed 
to  impose  any  liahility  on  the  (iovernniciit  of  Camida  <ir  on  the 
Minister  of  Finance  and  Ivecei\cr-(ient'ral  heymid  the  amount 
availahle  from  time  to  time  out  of  tlu'  saiil  fund: 

(S)  All  payments  made  from  the  said  fund  shall  he  without  rejranl 
to  the  amount  contrilmti'd  thereto  hy  the  hank  in  respect  of  whose 
notes  the  payuiCiits  are  made;  and  incase  the  jtayments  from  the 
fund  exceed  the  amount  c(intril>uted  hy  such  hank  tu  the  fund  and 
all  interest  due  or  accriiinir  dui'  to  such  hank  there. ui,  the  other 
hanks  shall,  on  demand,  make  ^ood  to  the  fund  the  amount  of  ^nch 
excess.  ,(/•'>  )'i''ii'  to  the  aninunt  which  each  hank  has  at  that  time 
contriiMUei'i  to  the  fund;  and  all  amuunts  recovei-ed  ami  ri'ceived  hy 
the  Ministi"'  i>f  Finance  and  Ke('eiver-(ieneral  fioni  the  hank  on 
whose  acoiint  such  payments  were  madeshall,  after  the  amount  of 
sucli  excess  has  heen  madi'  jzooil  as  aforesaid,  he  distrihided  amon^ 
the  hanks  cintriliulin!.' to  make  jrood  such  excess  imt  raid  to  tlu^ 
amount  ci'Mtrihuted  hy  each:  Provided  always,  that  each  of  such 
other  hanks  shall  (udy  he  called  upon  to  make  jrood  to  the  said  fund 
its  share  of  such  I'xcess,  in  payments  not  exceeding  in  any  one 
year  nue  jiercent.  of  the  uveraj;e  ain.'unt  of  its  notes  in  circulation, 
such  ciriMilation  to  he  ascertained  in  such  nninner  as  the  Minister 
of  Finance  ami  Heceiver-th'neral  decides;  and  his  <lecision  shall 
he  linal: 

00  In  tlie  event  of  the  windinj;  up  of  tiie  husinessof  a  hank  hy 
reason  of  ii\solveni'y  or  otherwise,  the  Treasury  Hoard  may,  on  the 
application  of  the  directors,  or  of  the  liipiidator,  receiver,  assignee 
or  other  j)ro|per  otlicial,  and  on  hein>r  satisfied  that  proper  arranjic- 
ments  have  heen  nuide  for  the  payment  of  the  notes  of  the  hank 
and  any  interest  thereon,  pay  over  to  such  directors,  liiiuidafor, 
receiver,  assijim-e  or  otlier  proper  i>Hicial,  the  amount  at  the  credit 
of  the  hank,  or  such  portion  thereof  us  it  thinks  expedient: 


I! 


Refonnx  Adopted  by  PnrUnmcnl 


335 


(ID)  The  Treasury  I^oanl  may  luako  all  such  rules  and  re^rulations 
as  it  thiuk-s  expeilient  with  iefcreiue  to  tlic  paynuMit  of  any  nioneya 
out  of  the  said  fund,  and  tlie  manner,  place  and  time  of  ancii  pay- 
ments, the  collection  of  all  amounts  due  to  the  said  fund,  all 
accounts  to  he  kept  in  connection  therewith,  and  generally  the 
manajremeut  of  the  said  fund  and  all  matters  relatinj;  thereto: 

(II)  The  Minister  of  Finance  and  Heceivt-r-Ciein'ral  may,  in  his 
ollicial  name,  l>y  action  in  the  {''.xcheciuer  Court  of  ("aiiada,  enf(prce 
payment  (with  costs  of  action)  of  any  sum  due  ami  payahle  hy  any 
hank  under  the  provisions  of  this  section.     (.'):i  Vic.,  cap.  :!l.) 

As  coiiipU'iiKMits  to  the  safety  fund  tliiis  ('stcil)lisho(l. 
action  was  taken  in  response  to  the  second  and  tliird 
^enefai  denumds  foi-  fefoi-ni. 

III.  it  was  iXMiiiii'ed  tliat  eacli  l)anl<  sliall  male*'  ar- 
rangements to  ensure  the  circuhuioii  i>f  its  notes  at 
par.  in  ail  parts  of  Canada,  and  towards  the  purjxtse 
it  shall  estahlish  ao'-ncies  for  the  redemption  and 
j>ay)nent  of  noti's  at  the  commercial  center  of  each 
province,  vi/..  Halifax.  St.  John.  ( "harlottetown, 
^Fontreal.  'J'oronlo.  Winnipeo- and  N'ictoria.  (.">;{  \'ic.. 
<"ap.  '-W .  ;;">;■).)  I'nder  the  SulVolk  system,  a  redemp- 
tion oMice  in  Boston  was  found  suiticient  to  prevent 
the  disconnl  on  ••foreio;n  hank  notes'"  from  any  part 
of  New  Hiio'land.' and  the  redemption  acjeucies  of  the 
Dominion  o()vernment  at  the  pr<»vincial  capitals  had 
kejd  the  notes  oi  the  Dominion  at  par.  There  was 
no  ri-ason  why  a  similar  arranocinent  shoiMd  not  have 
like  effect  ou  the  notes  of  the  (diartered  hanks.  The 
re(|uiiemt  lit  of  redemption  also  removed  an  element 
of  dauj;er  which  the  estahlishment  of  a  fund  mij;ht 
otherwise  ha"'e  introdiu'cil.  llavino-  received  in- 
creased credit  from  it.  the  notis  were  likely  to  remain 
in  circulation  lonj;"«'r.  aiid  it  was  necessary  to  counter- 
act the  (pujlitied  tendency  toward  intlation  hy  im- 
proviuo*  the  facilities  for  redemption. 

M».  It.  Whitney,  "The  Suffolk  I?ank,"  (*amliridj:e.  |s7S,  pp.  pi,  lid. 


1 


1 
v 

,  1 

'I' 

ti. 

* 

.  ; . 

«• 

t' 


\ 


i  1 


m 


336 


The  Canadian  Banking  System,  1817-1890 


IV.  Banks  going  into  liquidation  under  a  general 
winding-up  act,  or  becoming  insolvent,  were  nut 
only  deprived  of  the  benefits  originally  enjoyed 
under  the  statute  of  limitations,  but  were  obliged  to 
yield  to  the  government  whatever  advantages  may 
still  be  had  by  solvent  banks  from  the  loss  or  desti'uc- 
tion  of  notes.'  ]\loiieys  which  are  payable  by  the 
li(piidator  to  shareholders  and  depositors,  and  which 
have  remained  unclaimed  for  three  yeai's  aftei-  the 
suspension  or  beginning  of  the  winding-up.  oi-  until 
the  winding-up  is  complete,  if  that  occurs  l)efore  the 
expiry  of  three  years  from  the  time  it  is  begun,  arc 
required  to  be  i)aid  to  the  Minister  of  Finance.  He 
holds  them  subject  to  the  claims  on  behalf  of  any  ])er- 
son  other  than  tlie  bank.  Such  claims  being  estab- 
lished to  the  satisfaction  of  the  Treasury  Board,  the 
moneys  are  repaid  to  the  person  entitled  to  them. 
If  interest  was  payable  by  the  bank,  the  Minister  of 

'The  profit  from  notes  lost  or  destroyed,  lias  no  such  iniportancf 
as  the  puhlic;  coniiiionly  impute  to  it.  The  practit-e  of  hoarding: 
savinj^s  in  hank  nuics  is  pracitically  ohsolote  in  (Janaila.  A  perscjn 
may  as  well  trust  a  hank  in  another  way  and  fjet  interest  on  liis 
credit,  i.  e.,  hy  making  a  <U'poMit.  So  the  possihility  that  notes  thus 
held  may  he  destrijyed  hy  (ire  or  wiiat  not,  has  no  hearing  on  the 
question.  The  loss  hy  aci'ident,  theft,  rohhery.  etc.,  also  has  no 
etfect  on  the  hank.  Its  deht  simply  falls  into  other  hands;  the  evi- 
dence of  it  still  exists.  The  only  i)ossil)ility  of  protit  lies  in  the 
complete  (U'strui't ion  of  notes,  or  such  loss  as  makes  recosery  hy 
whomsoever,  utterly  impossihle.  There  are,  it  is  true,  (pianlities 
of  notes  which  for  some  time  disappear  from  active  circulation,  for 
so  lonjr,  in  fact,  that  an  inexperienced  ol)server  would  think  they 
must  have  heen  lost.  It  was  this  tardiness  in  comiiij;  hack  for  re- 
demption of  whi(;h  wiitdinf(-up  acts  enahled  banks  in  li(|uidation  to 
take  advantaite,  and  it  was  the  e.xtinctioii  of  the  holder's  claim  <in 
sui'h  paper  that  prompted  the  second  i^eneral  demand  for  reform 
above  noted.  In  fctrmer  years  the  hoard  of  many  a  Itank  still  in 
existi'uce,  have  decided,  after  profound  and  solemn  deliheration, 
to  write  oil  a  certain  amount  from  the  issue  account  for  dtstrovcd 


:    :. 


1 


Rr/onns  Adopted  hji  Piirh'itinrnf 


3:? 


)( 


Finance  also  pays  interest  at  three  per  eent.  for  not 
more  tlian  six  years  from  the  date  lie  received  the 
unclaimed  balances,  (j;  iSS,  [4].) 

By  a  similai'  provision,  it  was  enacted  that  the 
li(|uidator  shall,  before  the  final  disti'ibution  of  assets. 
or  within  three  years  of  the  date  of  susj)ension  or 
windin^-uj)  act.  pay  to  the  Minister  of  Finance  a 
sum  ecpial  t(j  the  amount  of  the  notes  of  the  bank 
intended  for  circulation,  and  then  outstanding-.  The 
l>ank  and  its  assets  are  then  relieved  from  further 
liability  upon  its  notes,  as  the  Minister  of  Finance  is 
re(|uired  to  apply  the  sums  so  i-eceived  to  tlx'  re- 
demption of  the  bank's  notes  as  they  are  presented. 
with(»ut  intt'rest.  ( ^jS8.  \iy\.)  The  first  provision  was 
explaiiu'd  as  soltttixni  for  the  ^linister's  pi-evious 
concessions  in  the  matter  of  unclaimed  balances.  Ky 
this,  together  with  the  exception  of  a  solvent  bank's 
debts  from  the  statute  of  linjitations.  and  the  retpiire 
ment   that    the   amounts  and   owners  of    unclaimed 

notes  whicli  thoy  never  expei-teil  tusce  iij.'ain,  ami  to  inlil  the  same 
to  the  credit  of  profit  and  loss.  Siihse(|uently,  they  have  lieeu 
obli^'ed,  sfimewliat  more  solemnly,  we  may  safely  say,  to  write  ttie 
ainijiuit  hac^k  a^jain.  The  notes  supposed  to  he  lost  ix'rsisti'Mtly 
returned  ffir  redemption.  JSanks  which  have  taken  over  the  husi- 
i.ess  of  other  hanks,  have  been  I'alied  on  to  redeem  more  notes  of 
the  amal^'amated  hanks  than  were  outstanding'  when  tiie  union 
occurred.  Fi>:ures  fnrnishetl  me  hy  hankers,  show  that  of  the  one 
and  two  ilollar  notes  in  circulation  on  the  :;d  .Fune,  1S7I.  less  than 
one  i)er  cent,  are  still  ontstandiiij:.  Of  the  four  <loiiar  notes  in  cir- 
culation i>n  the  :!oth  .luue,  ISSl.  whicli  tiie  liaiiks  were  instructed 
thereafter  to  call  in,  less  than  two  per  cent,  are  outstamlin'.',  the 
l)roi)ortion  unredeemed  hciii^  as  low  as  I.:!  pci  cent,  in  some  cases, 
and  iu  others  less  than  .-  percent.  For  sume  hanks,  we  may  say 
that  the  interest  on  the  amount  of  destroyed  notes  ini<.'lit,  possihly. 
]iay  the  mere  cost  of  printing;  involved  in  the  maintenance  nf  a  cir- 
(•ulation.  The  e.\i)erience  of  many  others  would  nut  warrant  tlie 
statement  that  there  is  any  appreciahle  jrain  thioii^li  tin'  iJesUue- 
tioii  (pf  notes  not  presented  for  rerjemption. 


■ 


I      i 


II 


ir 


■I- 


:i  is 

it. 


n 


ii 


338 


Thp  Ormiflidii  linnl-iufi  Si/sfnn,  1817-1890 


biilanct's  shall  be  ]nil)lisli»,'(l.  the  pui'poscs  of  his 
original  i»r(>]»osal  were  prctt}'  well  attained.  'J'he 
justice  of  the  second  reciuirement  is  manifest.  With- 
out it.  the  sti'ay  iKdes  that  were  slow  to  conie  in 
would  he  a  cliarge  upon  tiic  funds  contrihute(l  hy 
the  other  hanks.  The  hank  whence  they  issued  was 
oi)li<^ed  to  take  cai'e  of  its  outcast  children  —  found- 
lin<;'s  the  othei-  hanks  i-cfused  t()  rear. 

Four  efft'cts  of  the  Uauk  Circulation  Kcdemption 
Fund  and  the  coniplenientary  reiiuirenients  dcseive 
immediate  mention.  First.  tl:e  united  credit  of  all 
the  hanks  of  the  system  was  jdaced  hack  of  iho 
cui'i'ency  issued  hy  any  one  of  them.  Second,  the 
interest  of  six  pi-r  cent,  on  the  notes  of  a  failed 
haidc  provided  an  incentivt  for  a  li(piidator  promptly 
to  redeem  them:  it  was  jiu  inducemeut  to  solvi-nt 
hanks  to  receive  them  from  their  customers,  and  it 
was  a  i>rotection  to  all  lu)lders  from  loss.  Third,  it 
ma<le  it  impossible  that  the  notes  of  a  failed  bank 
should  fall  below  par.  for  besides  the  liability  of  the 
shareholders  and  of  the  assets  of  the  issuing;'  bank, 
there  was  pleflged  to  their  redemption  within  sixty 
days,  at  lol,  an  accunuilated  and  available  fund  of 
over  si  .8()(».()(M».  Foui'th.  the  bank  note  currency 
of  C"ana<la  actpiired  a  thoroughly  luitional  (duu*- 
acter:  since  IS'.X)  it  has  circulate*!  from  one  I'ud  of 
the  country  to  the  other,  never  C'ausinj4-  loss  to  the 
liohh'r.  yet  ke(>i)in«;-  unimi)aired  the  (lualities  for 
which,  in  its  less  perfect  state.  Canadians  had  again 
and  a}.;ain  refused  to  give  it  up. 

The  ori<;in  i>f  the  measure  is  more  difficult.  The 
plan  had  been  (piietly  worked  out  by  an  Ottawa 
banker  in  the  summer  hl  iS8S:  it  had  t)ccurred  about 
the  same  time  to  a  hanker  in  Toronto  as  an  excellent 


n 


Jiff  onus  Adopted  h  II  Pai'Ji(i>iient 


:}39 


nio<liriciiti()ii  of  tlic  New  York  Siifcty  Fund,  tlic  de- 
vicf  (»t"  which  Milhinl  Filhnr.rc  said:  "It  is  therefore 
a]ti»ar<'nt  that  tlie  Safety  FuihI  would  have  proved 
ail  ample  security  to  the  hill  holdei-.  had  it  not  heen 
applied  to  tlie  payment  of  otlier  dehts  of  insol\;'nt 
hanks  than  tliose  due  for  cii  .-ulation.""'  ( )n  the  otlier 
hand,  tlie  ^Finister  of  Finance  has  kindly  assured  me 
that  it  was  no  ada])tation.  hut  (luite  an  independent 
Canadian  devtdopment.  (U'siy;ned  to  meet  Canadian 
needs.  And  1  am  informe(l  that  aftei"  the  hankers 
laid  hefore  liini  tlieir  jdan  foi-  a  ••Security  Fund."  as 
it  was  lii-st  tei'nied.  Mr.  Fostei'  told  them  that  the 
scheme  was  al)out  what  he  had  thouj^ht  of. 

rpon  such  hi.i;h  and  divei'se  eviden«'e.  one  cannot 
l>e  expected  to  detei'inine  the  original  invention  of 
this  e.vcellent  feature  of  the  present  Hank  Act.  A  safe 
theory,  douhtless.  is  that  of  a  contem]»oi'aneous  inven- 
tion l)y  several  persons  nioi'e  or  h'ss  intluenced, 
though  not  always  consciously,  hy  the  reminiscences 
of  the  Xew  Yoi-k  Safety  Fund  system  still  fretpieiit 
in  discussions  of  hanking',  and  hy  the  knowledj^,.  of 
the  fund  for  tlu'  redemption  of  national  hank  notes 
ki'|)t  in  the  Fnited  States  Treasury  under  somewhat 
analoo-ous  re;^ulations.-'    Mr.  l\)stei-did  not  ado]>t  the 


l'<i 


'  Report  nf  the  Comptrullor  of  tlie  state  of  Xew  York,   1^1'.',  p.  L'H. 

-To  triR'i'  the  orij;iii  <if  tlie  iilaii  in  the  State  of  New  York,  it 
will  he  ne('es<ary  to  revert  til  the  lejiisiatioii  (pf  l^■_".t  liy  which  the 
"Safety  Fund"  wa.s  first  estahlislieil.  The  lirr-t  propnsal  "f  the 
seheiiie  must  he  aseritied,  imt  to  the  v'<'\eriior  at  that  time,  Martin 
\'an  Ihiren,  hut  to  one  .ioshuu  Furiuan,  whose  siii:>:e8lionH  the  ^o\- 
ermir  merely  recommemled  t<i  the  ;isspmhly.  The  real  author  ile. 
scrities  the  ori<iin  <(f  the  jilaii  thus:  "The  propriety  cif  makiii;.'  the 
bunks  liahle  for  eueli  other  was  suj:j.'esteil  hy  the  rejiuhititin  nf  the 
Hon^  merchants  in  Canton,  where  a  nnmher  of  men,  eai'h  acting' 
st'parately,  have  hy  the  ^rrant  of  the  government  the  exclusive  ri;;ht 
of  trading  with  foreigners,  and  arc  all  nnule  liahle  for  the  dehts  of 


Mi 


jj 


.'310 


Thr  C(i)i(i</i(in  Ihntkin;!  Si/s/cm,  1817-1890 


plan  exactly  as  the  bankers  supj^ested  it.  There  was 
no  maximum  established  in  his  bill  for  the  amount 
which  a  bank  nii^ht  be  obliged  to  contribute  to  the 
fund  within  the  c(»urse  of  a  year.  The  representa- 
tives of  the  Hank  of  Montreal  very  properly  objected 
to  the  proposal  in  this  form,  foi- under  certain  circum- 
stances, as  they  conceived,  their  bank  mijj^ht  be  in 
volved  in  a  liability  limited  only  by  the  circulation  of 
the  other  banks  in  the  Dominion  and  its  own  ability 
to  l»ay.'  Tin;  tJovernment  consented  to  remove  the 
dangerous  feature,  and  in  Committee  of  the  Whole 
the  amount  payabl;^  by  a  bank  within  a  year  was 
fixed  at  one  pei-  cent,  of  its  circulation.  Tiiis  provi- 
sion for  maintenance  was  believed  to  be  (piite  ample. 
The  exjjerience  of  twenty-three  years  showed  the  im- 
probability of  one  of  the  overwhelming  banking 
catastr()i>hes.  Avithout  Avhich  a  long  imi)airment  of 
the  fund  would  be  impossible. 

V.  The  fourth  criticism  remarked  in  >;.'')(»  was  met 
by  requiring  from  each  new  bank  subscriptions  to 
^r)(l(»,0(>(i  (.f  its  stock  and  payment  of  ^^'i.OO.OOd.  No 
new  bank  is  ])ermitti'd  to  begin  its  business  or  issue 
notes  until  .>^2i)().(M)()  of  the  capital  shall  have  been 
deposited  in  specie  with  tlie  Minister  of  Finance  for 
a  period  of  at  least  four  weeks,  or  until  a  certificate 

each  in  case  of  failure.  The  ease  of  our  l)anivs  is  very  similar;  they 
enjoy  in  conmiDn  the  exclusive  right  of  making  a  pa]ier  currency 
for  the  people  of  tlie  state,  ami  l>y  the  same  rule,  shouUl  he  in  com- 
mon answerahle  for  that  paper.  Thisahstractly  just  principle  which 
has  stood  the  test  of  exjierience  for  over  seventy  years,  ami  under 
which  the  bond  of  a  Hong  merchant  has  acfpiired  a  credit  over  the 
whole  world  not  exceeded  l>y  that  of  any  security,  modified  and 
ada|)ted  to  the  milder  features  of  our  republican  institutions,  con- 
stitutes the  basis  of  this  system."  \'ule  Van  lUiren,  "Message,  made 
to  the  Assembly,  January  L'tith,  Isi'lt,"  Albany,  lhi'!». 
'Garland,  op  fit.,  p.  IIOS. 


'*', 


lii'forma  Ailnpti'd  hji  L'drliinni'ii/ 


341 


])ermittin<;-  it  to  do  so  sluiU  have  been  issued  hy  tlie 
Treasury  P>oard.  The  ('('rtiticate  may  not  hv  granted 
until  tlicy  are  satisfied  that  the  iHMiuireinents  as  to 
cai)ital  payment,  eh'ction  of  directors,  etc..  have  been 
complied  with,  nor  aftei-  twelve  months  from  tiie  day 
on  which  the  act  of  incorporation  came  into  effect. 
(Hii  Vic.  cap.  31,  ^s'Ki.  HMO.) 

VI.  The  i>ayment  of  any  Jimount  due  to  the  gov- 
ernment of  Canada,  in  trust  or  otherwis(\  was  made 
the  second  charge  on  the  assets  of  an  insolvent  hank, 
and  liny  amount  due  to  the  government  of  any  of  the 
}>rovinees  a  third  charge,  the  noti'  holder  being  still 
assui'ed  the  first  right  of  ])reference.  (The  Hank  Act. 
vjoli. )  'I'll is  was  merely  the  eml)odiment  in  the  Bank 
Act  of  the  Crown  pri(  rity  at  English  common  law. 
'J'he  Minister  of  Justice.  Sii-  John  Thomitson.  exjdained 
the  action  tlius:  --We  seek  to  ]»ut  it  on  the  face  of  the 
Hill,  first,  because  we  are  endeavoring  to  adopt  an 
Act  with  respect  to  banks  and  baidcing.  which  will 
embody  as  much  of  the  common  law.  as  well  as  of 
the  statute  law.  as  we  can  conv<'niently  enil)ody  in  a 
Hill  (jf  this  kind,  second,  in  order  that  the  ]»ublic 
shall  know  what  the  law  is  with  i-espect  to  tlie  rights 
of  the  (Jovt'i'nment.  what  the  rule  is  that  prevails 
with  I'espect  to  the  prerogative  of  the  Crown  in  rela- 
tion to  its  debts. ■■'  The  law  was  not  the  same  in 
the  differen'.  provinces,  and  although  tlie  attt>mpt  to 
enforce  it  ii:  oi'der  to  the  recovei-y  of  deposits  with  the 
^Maritir.e  H;  nk  was  successful,  the  (^)ut'bec  coui'ts  had 
decliutd  to  >^ustain  the  picrogative  in  ;i  suit  at  the 
civil  hi  w  of  I  hat  province.  Some  objected  that  the 
pi'ioi'ity  would  diminish  the  security  alfordeil  to  the 
depositor.     The  Minister,  in  justifying  tlie  pi-eroga- 

'  Debates,  IS!M(,  p.  r.'.M  ti. 


i' 


H 


¥  Ii 


iihi, 


h 

I 


k  * ;  I  ■ 


Ii 


I 


342 


Thr  Canadian  Jian^-in;/  Si/sfnn,  1817-1800 


tive.  inciuiretl,  ••  Is  it  not  vain  to  talk  jihout  tlu'  iM'ccs- 
sity  of  pi'iv.'ite  individuals  trustiii};'  the  banks  of  tl'f 
country':'  They  trust  tlicni  for  tlu'ir  owi^  acco'nnio- 
(lation.  foi-  their  own  business  and  profit."'  ■•  We 
are  collecting  revennein  Canada  under  the  autlu>rity 
of  this  Parliament,  over  a  wide  extent  of  couiiti-y. 
byalar;;'e  army  of  idliceis  <tf  the  Customs  and  Inland 
Kevenue.  from  penalty  collecting;' oHicei's.  fioni  ma.yis- 
ti'ates  who  collect  peiuilties  due  to  us.  from  aj^'ents 
collectinjj;  moneys  to  be  applied  to  the  Crown,  and  the 
oidy  hands  we  have  for  the  receii)t  of  this  re\cnue 
or  of  any  mon^-ys  j»ayable  to  the  Crown,  are  the 
banks  whei-ever  they  are  established.  It  is  impossi- 
ble that  otlici  I's  can  have  vaults  ef 
their  own  in  whi(di  to  store  money.  We  nuist  resmt 
to  the  banks,  not  oidy  for  the  convenience  of  makin<;' 
deposits,  but  for  ti'ansmission.  and  to  that  extent, 
necessarily,  the  (Jovernmeiit  is  an  involuntary  credi- 
tor of  all  thost'  institutions — those  banks  whicdi  are 
the  creatui-es  of  this  Parliament  and  of  this  (iovern- 
ment.  J'erforce  we  are  oblij^'ed  to  avail 
ourselves  of  these  monetary  institutions:  and  the 
same  jnivilege  should  be  given  to  the  Crown  in  I'egard 
to  its  moneys  as  is  given  to  the  Crown  in  regard 
to  the  discharge  of  the  duties  of  its  otlic(M-s.  for  the 
very  analogous  i-eason  that  the  Crown,  being  obliged 
to  discharge  its  functions  of  govei'ument  by  a  great 
army  of  otlicers  throughout  the  country,  is  relieved 
of  resjionsibility  for  the  negligenc(>  of  its  oHicers."' 
Otliers  denied  the  ap]ilication  of  the  rt-marks  to  the 
provinces,  which  luul  no  such  ditticult  task  in  collect- 
ing their  revenue.  ^Mr.  Weldon  acutely  noted  the 
distinction  between  the  Crown  priority  for  moneys 

'Di'hates,  I8!t(),  pp. :;!»()»;,  :vm>7,  :!!*7-'>. 


Reforms  Adopted  hji  PdvUrnnctit 


:M3 


(tollt'ctfd  as  puhlit-  rcvcmu'.  and  for  money  wliich  the 
^ovei'iiincnt   chooses   to  loan  to  a  hank   in   oi-ch-r   to 
ohtain  interest.    Sir  .Jolui  Thompson  refused  toaecejit 
the  distinction,  in  rep|\  inn-:   ••'rhe  ( ioveinnient  stands 
in  precisely  the  same   rehilion   with   rej;ard   to   hii'^'e 
ckvsses  and   snn\s  of  money  (not    reveniiei.  as  it  (h)es 
in  rehition    to   i-e\-enne.  sucli    as   security  fiom  con- 
tractoi-s.   and    (h-posits  from   insiiraiu-e   companies." 
Tlie   resnh   of  s:ich  a  distinction  would    lie  that    the 
jj^overnmenl    could    not    distrihute    the    funds    in    its 
keepinj;'  and  spread  the  risk,  while  at  tiie  same   lime 
l)reservin^   a    lien.      Sir   John    Mac(lonald    remaiked 
that   ••the   hanks,  no  douht.  would   intinitely  lather 
run  the  liahility  than  lose  the  (lovernmont  deposits. 
A  haidc  is  at   liherty  to  jtost  a  notice   saying-  it  will 
not  receive  ( lovernment  (hjiosits  on   the  second   lien 
footing.     P>ut  the  shareholders  would  say.  at  the  next 
nicL'tin;;-.    that    the   dii-ectoi-s    had    thus    injured    the 
bank's  standin*;-  and   prestige."      It  is  api>arent   that 
the  criticism  of   .Mr.  Weldon  was  evaded  i-ather  than 
refuted.      His  remark  applied  to  the  case  of  i;overn- 
ment  assistance   to  a  hank,   whether  for  the   public 
^•ood  or  the  advantage  of  the  government's  friends. 
In  a  debate    upon    bank    inspection.   (V'cui'rinjj^  in 
iSSn.    Sii-  John   ^facilonald    had    sta»ed    the  (ioveni- 
ment's  ])olicy  thus:   "It  is  sometimes  in  the  interests 
of  the  ( Jovoi'nnient  (and  the  ( lovernment  should  have 
no   interest  except   that   of  the  public )  to  st  ren^t  hen 
banks  by  making'  deposits.      It  has  been,  in  my  exjie 
rience.  looking  back,  found  ri'ipiisite  or  expedient  by 
several  ( Joveri.ne.its.  in  times  of  great  depression,  to 
prevent  universal   ruin,   ui:  vei'sal   i»anic.   to  come  to 
the  help  of  son*"  of  the  bank   institutions.      (Joveiii- 
ments  have  on  occasion  prevented  universal  panic  Ijv 


iH-'h 


!i' 


fc'i. 


844 


'I'ltr  (fiimnliun  liankimi  Si/slem,  1817-1890 


at'tiii^  in  concert  with  Ktronp  hanking  institutions, 
in  hclpiiijj;  to  sustain  Itanks  wiiich  were  not  (|uito  so 
stroiij^."  '  'I'lio  rci'tuiii  cstuMisinnont  of  tiic  ri}?ht  of 
till!  Crown  to  pri'fcrciicc.  tcinls,  it  would  sccin.  to 
induce  a  ( lovorunicnt  to  assist  a  weak  hank,  jtarticu- 
larly  wlicn  tliey  aro  unduly  ]»r('ss»'(|.  and  there  ar(( 
good  chances  (d"  hringinj^  it  safely  out  hy  that  means. 
Hut  sinci'  (»n«- or  two  piiinful  experiences  the(iov- 
ernnients  of  Canada  and  of  the  provinces  luive  he(!n 
chary  of  hi-ing  cauj^ht  in  a  failed  hank.  In  stormy 
times  the  funds  of  the  slate  appear  to  (h>sert  the 
frailer  craft,  to  seek  safety  in  the  stauncliest  and 
strongest  of  the  hanks.  The  attitude  of  the  people 
was  clearly  indicated  aftei-  the  Extduinge  liank  fail- 
ure. Politicians  will  not  willingly  provoke  a  like 
explosion  of  criticism.  Puhlic  opinion  is  a  mighty 
corrective  for  any  such  al)uses  as  granting  loans  or 
unduly  heavy  dei)osits  to  a  favored  hank,  hut  in  the 
later  years  of  Canadian  hanking  its  effect  has  heen 
potential.  The  need  for  its  activi>  exertion  has  not 
arisen. 

VII.  Hy  a  seventli  series  of  new  clauses  the  loan- 
ing powei's  of  the  hank  were  extended,  the  law  as 
to  warehouse  receipts,  etc..  recast,  and  the  jtroceed- 
ings  under  it  simplified.  The  principles  already  re- 
cognized that  a  hank  may  advance  money  in  cei'tain 
cases  to  aid  in  the  manufacture  of  goods,  and  may 
keep  its  claim  on  the  material  security  during  and 
after  ti'ansfoi-mation  fi-om  the  raw  material  to  the 
finished  jiroduct.  were  made  general  in  the  follow- 
ing clauses: 

^7K  TliH  l)iuik  may  UmkI  money  to  any  person  cnijratrcfl  in  1. tidi- 
ness as  a  uiiolt'sale  riamirai'turerof  anv  noods,  wares  ami  merclian- 


'  !>ebates,  Eloiise  of  ("ominons,  iss"),  p.  s">. 


Jip/oniis  Ailojtlpit  lnj  /'(ir/itiiiii')i/ 


;m5 


(li.sf,  upon  tlie  security  of  tlu"  goods  wares  ami  nierchaiulise  mniiii- 
fai'ture'l  t'V  liini  <  r  procured  for  siicli  inuiiiifactiirt': 

'J.  Tlu!  tiiiiik  may  uIho  Ifiiil  moiu'V  to  any  wliolesalc  piircliuser 
orMliipi)er  of  products  of  ajjriciiltiirc,  the  forest  and  mini',  or  the 
sea,  lakes  and  rivers,  or  to  any  wliulesale  piircliascr  or  shipper  of 
livestock  or  dead  stock,  and  the  products  tliereof,  upon  the  security 
of  sucli  piciihicts  or  of  siicii  live  stock  or  liead  stock  and  the  product 
thereof: 

'■'>.  Such  security  may  he  >;iven  hy  the  owner  and  may  tie  taken 
in  the  form  set  forth  in  Sclieihile  C  to  tliis  act,  or  to  the  like  elTect; 
anil  liy  virtue  of  sucdi  security,  the  hank  shall  acipiire  the  same 
rij;hts  and  powers  in  respect  to  the  ^.'Ood>,  w  vres  and  m«'rchandise, 
Htock  or  products  covered  therehy,  as  if  it  had  accpiired  the  same  hy 
virtue  of  a  wandiouse  receipt.  '• 

ji"''.  If  ^.'oods,  wares  and  merchandise  are  nianufa.  lured  or  pro- 
duced from  tlie  -.mkIs,  wares  and  merchandise,  or  any  of  them, 
inchideil  in  or  covered  hy  any  warehouse  receipt  or  security  ^'iven 
under  section  seventy-four  of  tliis  Act.  while  so  covered,  the  l>ank 
iioldinj:  such  warehouse  receipt  or  security  sliall  liold  oi  continue 
to  hold  suih  jjoods,  wares  and  merchandise,  during;  the  process  and 
after  tiie  completion  of  such  manufacture  or  production,  with  the 
same  ri<:ht  and  title  an<l  for  tlie  same  purposes  and  upon  tlie  same 
conditions  as  it  held  or  couid  have  lield  thi'  orijrinul  j;oods,  wares 
and  merchandise 

The  Word  ••  inamifaftiifcr* "  was  rxtciided  to  include 
••maltsters,  distillers,  brewers,  refiners  and  producers 
of  petroleum,  tauiiers.  curers.  packers,  cauuers  of 
meat,  pork,  fish,  fruit,  or  veo^etaldes.  and  any  person 

'  KdUuwiiitf  IS  111!'  loriii  ^rivi'ii  ill  .Solii'iliil"' C.: 

In  coiisiileratioii  of  iiii  advimce  of  ilolliirs,  iiiailo  by  f  ho  okikk'  <i/ 

bitnin  to  A.  it.,  fcir  wliicli  the  said  haiili  lioMs  thn  IdIImwiiir  liills  or  imtes  uli'- 
,'<cvilir  fiiUii  till  /ii(/.'i  <rr  notis  luld,  it  aiiii^.  tlic  jfnoilg.  wares  and  iiici't'lniiiclisc  imii- 
li(iiR-il  liclow  nil-  linreliy  ii-^fiuiieil  tn  the  siiiil  luiiili  us  -irciirlty  lnr  ilic  piiy- 
llioiit,  I'll  •'!■  tiefdi-e  tlie  iliiy  of  ol'  III.'  siijil  iidv  iiiice, 

totfctlwr  with  interest  ihiTc'iPii  iit  tlii' rati' ul'  pvr  ci'iit.  per  umniiii 

from  the  iliiy  III  lor  of  the  <iiiil  hills  nml  noti's  or 

renewals  thereof,  u;- siili-^titiiliun-i  therpmr,  ami  inleiest  thereon,  nr  d.s  tin-  nim: 
mail  III .) 

'I'l.:--  -ieciirity  is  pfiven  under  the  prov  l-ijons  of  section  ~eveiity-foni' of  "'riio 
Hank  .\i  t,  '  imd  is  siilijeet  tn  all  the  provisionti  of  the  said  .Vet. 

The  said  fronds,  wares  and  in.  rehandise  are  now  owiie.l  liy 
ami  are  now  in  possession,  and  arc  free  from   any  mortun>fe,  li.'ii  or 

eharjre  thereon  (or  ax  tlif  i-aii  (ii'ij/  If  .  ami  are  in  (p'rtrc  nr  iilacfs  u-lien:  iinntl.i 
lilt',  and  are  the  I'ollowintf:  (pattniihtr  'i'»d  iiitinv  ••/  ynor/.i  its.ti{iiiiil). 

Dateii  at  Is    . 


Im 


i   i  t  \ 


i.L 


» 


846 


'I'hf  Cannilian  Jldui-iii;/  Si/sfem,  1817-18(M) 


who  produces  by  hand,  art.    process  or  mocliaiiicnl 
means    any    ^-oods.    wjires  ov    niercliandise."     ( jj  'J. 

i/;!) 

The  new  clause  niach'  it  possihh'  to  dispense  with 

thw  h'}.;al  liction  \>y  whicii  tlie  hani\  was  allowed  to 
lend  directly  on  the  secni'ity  of  oodds  hy  takinj;'  a 
warehouse  receipt  or  hill  of  lading;"  therefor  from  any 
person  en;;a<;"ed  in  the  ostensihie  Lusiness  itf  ki-eper 
of  a  yard.  cove,  wharf  oi-  harbor,  or  of  warehouse- 
man, miller,  sawmiller.  maltster,  manufaclurei"  of 
tindter.  wharlinj^ei-.  master  of  a  vessel  or  other  car- 
rier by  land  or  by  walei".  or  by  both,  cui-er  oi-  juu'ker 
of  meat,  tanner,  dealer  in  wool,  oi- purclnisei' cd' aj^'ri- 
cultural  produce,  even  thou<;h  the  <^iantor  of  the 
document  was  the  owner  (d'  the  <;'nods.  I'i'ovision 
for  iimkiii}::  sucdi  advances  directly  was  now  supjdied 
by  5;  74.  without  the  ratlu'r  (dumsy  device  of  dividin,u; 
the  borrower  into  twojtersons  in  oi-dei"  to  his  con- 
cluding- a  transaction  with  hinis(df.  Henceforth, 
persons  owninj^'  the  ;;()ods  could  not  ^rant  a  ware- 
house recei]>t  or  bill  of  ladinj;'  f<tr  them.  The  uccjui- 
sition  and  holdin<;-  (d'  the  warcdiouso  receipt  or  i»ill 
of  ladin<4'.  oi-  the  security  above  described,  are  for- 
bidden the  bank,  unless  t'l'  debt  wlucdi  these  secui'ed 
is  nejj^ot  iaie<l  at  the  same  time  as  they  wei'e  tiiken.  or 
ujjon  the  written  jtromise  that  such  security  will  be 
j^iveu  the  bank.  Renewals  of  loans  thus  made  can 
be  •;ranted  without  alTectiu^'  the  security.  The  bank 
inay  surrender  a  wai"«diouse  recei]>t  for  a  bill  of 
ladin<^.  ami  riic  rcrsa :  it  retains  the  ]irior  lien  over 
the  unpaid  vendor:  it  may  sell  the  <;dod>  on  non-j»ay- 
inent  of  the  debt  without  the  consent  of  the  pled>^or, 
but  must  disjiose  of  them  at  public  auction,  after  due 
advertisement,  and  in  tlie  case  of   timber  (U-  lumber. 


liefoi'HIX  Ailojtlcil  lijl   I'lirlidiiniit 


847 


must  ^ivo  thirty  (Iji.vk'  untie*'  of  tiic  siilr.  hy  rc^'is- 
ttTcd  letter  ti)  tlie  Jiled^nr.  Mild  ill  ciise  of  otllef  ;^o(K|h. 
etc.,  tell  diiys"  llotiee,  Tlie  penalties  for  lliisde- 
ini'fUior  Jiiid  Mot  iiioie  tliaii  two  years"  iiii|irisoimieiit, 
are  estaidislied  for  ;^iviii^-  false  receipts,  etc.:  for 
alienation  of  the  ^oods  deserihed  ill  the  iiisl  niliieiit . 
hy  tht(  hailee.  hefoie  the  d«d)l  is  |iaid  and  w  itlioin  the 
consent  of  the  hank  {^iveii  in  wiitiii;;':  or  fur  wilh- 
luddinj^  from  the  hank  possession  of  the  ;;d(ids  after 
default  has  occnii'red  in  payniont. 

We  have  here  the  last  staj;e  of  a  developnuMit  out- 
lined in  Parliament,  thus: 

{(t)  only  the  hailee  ;;iv<'s  a  warehouse  receipt: 

{!>)  warehoiiseman  ^ives  a  receipt  fur  his  own 
goods; 

(c)  al»atement  of  the  recpiiremeiit  that  the  y;raiitor 
of  the  reeeii>t  should  he  a  waichoiiseman.'  'I'he  new 
priiK'i])le  was  defended  hy  Sir  .John  'rhoinpson  as  a 
measure  for  the  convenience  of  manufacturers  and 
producers,  ami  the  security  »d'  the  hanks.  It  was 
calculated  to  enaltle  those  carrying'  lar;^e  stocks  in 
course  of  maiuifactnre  to  ^(.t  the  support  <d'  the 
banks  on  the  same  terms  as  are  made  to  other  appli- 
ca'Us  for  unexceidionahle  advances. 

As  tirst  hrouj^ht  down,  the  hill  authori/ed  the  hank 
to  loan  on  the  security  <^iveii  hy  any  jx'rson  eiij^aj^'ed 
in  business  as  a  wholesah'  inannfacturer  oi-  producer 
of  ^'oods.  wares  and  nn-rcdiandise.  The  expression 
"producer"'  was  criticised  as  inr'hidin<;-  the  farmers, 
whose*  fjjeneral  ci-e(lit  with  inei'chants  and  otlier>  rests 
larjjjely  on  the  visible  possession  of  certain  ]ier>^oiial 
property — such  chatttds  as  j;rain,  cattle,  and   iiiiph.' 

'I)el>iitt'H,  Is'.Hi,  p.  A-2',\U't  »e<i.,  Ueniiirks  nf  Mr.  I'.lakt^ 


■  W 

n 


r 


)■ 


J 


■fBf 


r 


m 


:!4S  The  Caiiailitin  Ihinking  Sjiatcm,  1817-1890 


i|  ' 


mciits.  An  iissifrnmont  of  tlieso  accordinp^  to  the 
form  i»i(scrilKMl  by  the  act.  wouhl  not,  like  a  chattel 
ni()rt*^a<;('.  heconie  notorions.  and  the  basis  of  tlie 
fanner's  credit  vvonld  l)e  badly  impaired,  no  creditor 
beiiij;'  abb'  to  know  whether  the  ownership  of  prop- 
erty is  ill  the  pe?'son  whom  he  is  asked  to  trust,  or 
\n  some  bank.  ]Many  farmers,  moreover,  wish  not  to 
borrow  on  the  personal  security,  but  to  "etain  and 
use  it  as  a  basis  for  credit  in  ordinary  transactions. 
The  security  alfoi-  led  to  tile  bank  would  be  partly 
fictitious,  for  bet\'.'een  a  bank  and  a  farmer  there 
ai't'  almost  no  such  opportunities  to  watch  the  i)ro- 
ceediiij;s  of  ;i  debtor,  to  enjoy  his  confidence,  and  to 
meet  him  in  daily  transactions,  as  there  are  between  a 
bank  iind  a  manufactui'er.  mill(M*  or  produce  shipjier. 
As  the  (Jovenimeiil  liad  no  intention  of  inchuling 
farmers,  the  (»bjectional)le  phrase  was  expun^«'(l.' 

The  debate  aroused  some  of  the  champions  of  the 
farming  interests  ajj^ainst  private  money  lenders,  and 
the  ex]iense  of  borrowing"  on  mort<;a^«\  but  they  were 
well  answered  by  Mi-.  Blake: 

You  liiivc  liiul  the  proposition  for  a  livml  Imnk,  tlie  proposition 
for  a  farmers'  hank,  the  [iroposition  .'or  a  national  riirrcncy  hase<l 
upon  lanil  or  irredccniaMe  ciirrency,  ycm  luive  lia<l  niinioronH  pro- 
posals to  liclp  the  fanning  coninmnity  to  clieap  and  easy  in<. ..ry, 
hut  the  conditions  njion  which  ( litap  ami  easy  ninney  arc  to  he  oh- 
taincd  are  aliso'.iitely  ojiposed  to  the  principles  which,  in  rejjard  to 
tlie  production  and  mannfactnre  of  ^oods.  are  found  to  hi'  sustained 
liy  this  House  and  hy  this  country,  at  tlie  present  day.  *  *  *  * 
The  nioMU'iit  the  farmer  can  show  that  he  can  ^rive  the  same  pros- 
jiect  of  a  return,  witli  llie  same  udvantajie,  with  the  same  security 
that  other  com|iet itois  for  the  stock  of  availahle  money  can  ^»i\('.  lie 
w  ill  (let  all  tiic  money  he  wants;  and  to  the  extent  he  cannot  show 
that,  lie  never  will  \sv\  it.-' 

'I»eliat<'.s.  IMiO,  pp.  ir.'T"."  4;iil.s.  Sir  J.  I'lioiiipson  Sir  l».  A.  Siiiitli.  Sir  H.  J.  Ciirt- 
wriKlit.  iiinl  .Mcsms.  Mliikc  Klrkiiiitrii-1<.  Sproiilc  l,iiii<lcrklii  l)iil,\  ,  Wiilsmi. 
WiiiilieaiKl  .MItclifll 

■Ihid.  p.  4'-'ii.->. 


lii'forms  Adopted  hji  PurJidinent  340 


uintnint  <»f 

|;'.,tHi(i  when  tlie  paid-nj)  ctiiiital  of  bank  is  less  than 
"  "  "  "  lietwft-n 


?l,0fll>.(HlO 

1, .iiiMi  and 

:;,ii()(),it(in 
.".,(liMi,nO(( 


by  tlu'  1  reasury  rioatd.  i  lu'  ainoinu  at  wiiicii  iiit' 
rest  must  sttiiid  Ix'fori-  division  of  jji-ofits  cxciM-din;;- 
eight  per  vv\\\.  \n'V  aiiiuini  is  allowable  wa--  laiscd 
from 'JO  to  :{<)  per  (MMit .  of  tlu-  paid-in  capital  stock. 
Tlic  privileged  lien  enjoye<l  hy  the  itank  on  shares 
(»f  its  stock  held  hy  dehtois  was  retained;  in  case 
of    default,    the    hank    was    conunanded    to    S(dl    the 


of  default,  the  hank  was  c 
shares.  aft<'r  notice,  within  twel\c  nionths  after 
tlio  del>t  is  accrneil  and  heconn'  payahh'.  TIh'  iiiiirc 
t'Xeniption  from  all  i»enalties  upon  usin\  wa>  rciaiiicd. 
and  the  l)anks  idlowed  to  take  in  advance  ;iny  rate  (d' 
inti'rest  up  to  se\  I  n   percent.      A    lii):;lier   rate   i>   not 


n 

ot 
'I'lie  liahility 


inti'rest  up  to  se\  en   per  ce 

forhiddeii.  t  lioiigh   It    I-  not   leeovei-aiile. 

of   hanks  to   repav   nionev  s  dep((sited  with  iheni.  ami 

to   i>ay  dividends  (hchired  and  payahle  on  its  capital 

stock,  was  declared  Uy  <'oiitJ.uue,  not  wit  hstanding  the 


||1 


% 


i; 


;! 


I 


H 


ill 


•.M)0 


The  Ciniailian  linnkin;i  Sifsft'tii,  1817-1890 


statute  of  limitations.  The  liability  of  tlie  transforor 
was  made  to  coiil  miic.  saving  his  rccoaj'se  aj^aiiist 
tlu'  traiisfcroc.  on  all  shares  in  the  hank,  the  transfer 
of  which  is  re^isirred  wit hin  sixty  days  of  the  ha)ik"s 
siisiMiision.  'i'he  former  ])eriod  was  thirty  days. 
Besides  the  monthly  return,  hanks  a I'c  ohliijed  to  make 
sjiecial  iTturns  whenevtM-  called  on  so  to  do.  and  to 
furnish  an  annual  list,  duly  certitied.  of  theii-  share- 
holdei's.  jilaces  of  their  I'esideiice  and  amount  of  stock 
held  hy  each.  The  makinj.?  of  false  i-eturns  or  wilful 
concuri'em-e   therein    is   an   offence  a<cainst  the  Hank 


Act.     The  useof  the  titles  "Ihuik. 


Uankinu'  House 


etc 


w 


ithout    aullioiitv    uiuhi'   the    IJauk    Act.    was 


made  au  offence  aj^ainst  it.  whether  or  no  the  e.xpies- 
sion  "N'ot  hu-oriior.ited""  is  added.  I'ei'sons  eommit- 
tin;^"  an  offence  au'aiust  the  Hank  Act  are  liahle  to  a 
tine    not     exceediui;-    sj.ooo.    o|-    iinju'isonment     not 


exceeding;"  five  year--,  of  hoth. 


mallv 


tin 


'ualtit 


a^'ainst  cii'culal  loll  in  excess  of  |taid-U|>  capital  were 
iucreased  in  severity.  To  the  ahsolute  consideration 
<»f  makin;;'  them  more  effective  was  added  the  neces- 
sity of  protect  inji'  the  coiit  rihiifors  to  the  fimd  ^uar- 
anticiu^'  I  he  hauk  note  currency.  Kor  issue  e.xceed- 
inj;- 1  he  amount  of  the  paid-up  cajjital  hy  not  more 
than  -"^Lodo,  the  tine  imposed  is  ecpial  to  the  amount 


.f   th 


e    excess. 


Where   issues  e.xci'ed  the  amount  of 


paid-up  capital  hy 


n    \,,     $  •.'(i.Odu  tlie  line  is  I 


for  exci'ss  ln.'t\vc(>ii     l'(t,(Hin  an.l       Kiiiitod 


OVl'l 


IIMI.OUtI 

I'm  I. mil) 


•JdlHMHI 


1,01(0; 

Ki.lMKt; 

.Vt.dilO; 

10(1,01  »0. 


The  ref<irm>  adopted  hy  the  Canadian  l'arliam«'nt 
in  the  session  of  IS'.to.  ;md  emhodied  in  the  "Act  res- 
pecting Banks  ami   Banking"  (')'A  \'ic..  vu\).  :M).are 


Sutnmavy  and  Review 


351 


tlu'  last  Caiuidian  legislation  with  wliioh  our  liistori- 
cal  study  is  concfrncd.  'J'liis  forms  tJH' present  hauk- 
in<;-  hnv  of  the  Dominion,  common  and  uniform  for 
every  jiroviuce  from  Prince  Kdward  Island  to  P.ritish 
('olumi)ia.  The  c(»i'i»orate  lives  of  the  thii'ty  six  hanks 
\V()i-kin<;- umh'r  Canadian  charters,  weie  c(»ntinued  hy 
the  act  (»f  IS'.X)  to  the  1st  .iiily.  !'.;(»1:  means  were 
provi(h'd  for-  l)rinH;iny^  the  Merchants'  l'>ank  of  i'l'ince 
Kdward  Island  under  its  operation,  the  sjiecial  fea- 
tures of  La  i)ant|Ue  du  I'euple  Were  a^ain  conlirnied, 
and  the  two  l»anks  \vorkin>;'  under  royal  (diarter.  the 
Baitlf  of  I'.i-itish  North  Ameiica  ami  the  liank  d" 
Itriti-ii  Cohimhia.  were  ^iveii  the  same  iM'ivilej4-es, 
and  -ulijected.  with  hut  few  exceptions,  to  the  same 
restrictions  and  dut ie>  as  theii'  compet itois  of  cisat- 
lantic origin.  From  ilie  last  and  in  some  respects 
the  most  si;;iiiticant  (d'  a  louj^  series  of  statutes  deal- 
iiii;-  with  li-'iikin;4'.  we  may  properly  turn  to  a  hiief 
review  (if  the  leadiiii;  facts  to  tracing'  whuh  these 
pa;;'es  lia\'e  heen  dcVdU'd. 


?:.).>.     siM.MAin    AM'    i;kvii:w 

I.  'riii'ee  facts  have  usually  ai»i>eared  as  precedent 
to  !  he  incori>oration'«  <;ranted  hy  the  lej^islatures  of 
lie  IJritish  North  American  Colonies  to  joint  stock 
liaukin;;'  coi  paiiio:  the  lack  id"  a  s;it isfactoiy  circu- 
lat  inii'  medium,  the  entei'prise  of  pi-ivate  capitalists, 
anil  iheilesii-eof  the  ley^islature  to  facilitate  assist- 
ance til  t  he  conmierce  and  a;;ricui1  lire  cai'iied  on  hy 
their  c«»ii>tituents.  The  hanks  thus  chartered  secured 
the  i-i^;lit  to  perform,  within  the  legislature's  juris- 
diction, all  the  funi'tion-  pertaining-  to  hanking  in  its 
full  ami  flee  deveiopnuMit.  and  to  carry  on  their  hiisi- 


ii 


I  fit 


, 


in 


h 


n 


t 


m 


if: 


I  ■ 


352 


The,  Canadian  liankinr/  Si/stem,  1817-18'JO 


ness'vvith  very  few  restrictions.  As  in  the  legislation 
wliieh  first  governed  tliem.  British  jtrecedents  were 
followed,  so  their  practical  banking  was  a  <«»py  in 
many  i-esjtects  of  Britisli  banking — Scotch  examples 
being  specially  afl'ected  in  I^ower  C'ana<la.  And  as  in 
Scotch  banking,  the  simple  ])rinciple  of  paying  debts 
in  specie  on  demand,  enforced  by  mutnal  citmpetition 
of  the  banks,  and  sanctioned  as  it  was  by  the  capital 
punishment  of  charter  forfeiture,  proved  a  '-onserving 
factor  of  great  power,  little  noticed  by  the  jiublic,  no 
doubt,  but  constant  and  relentless  in  its  <»pei'ation. 
Down  to  1S.*)().  if  we  except  the  season  of  banking 
agitation  in  Upper  Canada  preceding  the  crisis  <»f 
J.s;)7.  there  seems  to  have  been  very  little  originality 
among  the  colonists  in  regard  to  their  banks.  A  new 
charter  was  granted  from  time  to  time,  and  the  old 
ones  renewed,  but  the  new  lestrictions  embodied  in 
the  legislation  were  of  British  origin,  opposed  in  most 
cases  by  legislatures  as  well  as  the  banks,  and 
a(h){tted  only  after  peremjitory  instructions  from  the 
Colonial  Ottice  in  Downing  street.  It  was  througli 
these  authorities  also  that  the  antidote  was  piovided 
for  the  leading  example  of  peiverted  activity  in  eur- 
rency  regulation  and  the  establishment  of  l)anks — 
the  Upper  Canada  banking  mania  of   IS;{;}  to  1S:}7. 


In  1S,")8.  liowev(M',    hard    ti 


mes.   one    or   two  perse 


vei'ing  agitators,  and  about  the  same  numbei-  of  self- 
conlideiit  theorists,  induced  the  law-makers  of  ( 'anada 
to  try  a  systi-m  of  banking  (juite  alien  in  piiiuiples 
to  those  by  which  the  eight  existing  banks  w»'re  gov- 
erned and  performed  their  functions.  The  effort  was 
j)roved  hopeless  in  four  years,  the  plan  having  lost 
on  its  faults.  The  legislature  gave  up  the  new  and 
returned  to  the  old  lines  in    the  provision  then   maile 


Sininntin/  and  Rrricv 


M):i 


for  inorcasiii^  the  lumiltcr  of  Imnks.  At  the  same 
time  the  provincial  ^oNM-nunont  oiiIarjjj<'(l  on  tho 
policy  of  cxjtioitin;;-  the  hanks.  l»('<;uii  l»y  the  circu- 
lation tax  of  1S4I.  I»y  i'0(|uirinj^  ni-w  hanks,  and 
those  whose  cai>itals  \vei"e  increased,  to  invest  a  |>art 
of  their  capital  in  tiehentiires  of  the  jtrovince.  'i'he 
earliest  real  reforms  of  un(iuestional)ly  Canadian 
invention  are  met  in  1S,")'.>.  when  the  first  measures 
resjjectinj;"  warehouse  receipts  were  passe(|  at  the 
suj^^estion  of  the  hanks.  ( )n  three  occasions  the 
chai'actei'  of  the  cni'rency  was  menaced  hy  chanj^c; 
in  1S41.  when  Lord  Sydenham's  ]»roposals  for  a  hank 
of  issue  were  overcome  larj^ely  thro'.i^h  tlu'  inlluencc 
of  the  vested  interests;  in  IS(')(>.  when  the  maiden 
efVort  of  Sir  A.  'V.  (Jalt  at  curi-ency  rc;;iilation  was 
presented,  hut  was  rejected  for*  its  jireposferous 
nature:  in  IS(;(5.  when  their  friends  and  the  friends 
of  sound  p(dicy  successfully  resisted  that  jtart  of  the 
same  minister's  project  hy  which  the  hanks  wei-e  to 
he  deprived  of  the  right  to  issue  their  own  notes. 
The  local  I  ,i;islatures  passed  tlie  laws,  that  is  under- 
stood, hut  V  e  may  say — without,  however,  that  minute 
in([uiry  in:  «  causes  which  may  jtroinpt  criticism 
for  (I  j)i'i:..  I  speculation — that  for  the  hody  of  legis- 
lative restrictions  under  which  Canadian  hanks  were 
workinj^  in  IS(>7.  Rritish  precedent  (l>y  that  is  meant 
Scotcli  as  well  as  l''n<i;lish)  and  imjierial  rej^nlation 
were  chietly  resjxtnsihle.  'i'he  same  remark  ajtplies 
with  almost  (Mpial  force  to  Xova  Scotia  ami  New 
P>runswick   hank  charters. 

For  whatever  of  soundness  or  of  weakness  there 

was  in  their  practice,  the  hanks,  of  couise.   had   to 

praise  or  hlami'  themstdves  and  the  conditions  whei'e 

they  worked.     Those  conditions  were  such  that  men 

23 


i; 


\ 


■ti!; 

I- 

irl! 


n- 


35'  The  ('anailian  llanh-inn  Si/sfem,  1817-1890 


tliouf^ht  tlie  devc'l()|)iuont  of  tho  coimti  y,  tlie  opening 
of  its  rcsourct's,  the  first,  pracrtically.  of  all  economic 
considerations.  Toward  these  the  Canadian  l)anks 
rendered  yeoman  service,  increasinj^  their  capital 
and  extending  their  field  of  operation  as  fast,  jtroha- 
hly,  as  the  growth  of  the  country  warranted.  The 
great  J^ank  of  British  Xoith  America,  which  had 
entered  all  the  proviiu-es  in  1S;?7.  rendered  incalcula- 
hle  henetit  to  colonial  develoi)ment  hy  liheral  admin- 
istration of  the  one  million  pounds  sterling  which 
formed  its  capital:  to  colonial  hanking  hy  the  con- 
servative chaiacter  of  its  manag<'ment  and  hy  the 
sound  hanking  ti'aditions  hrought  hy  its  officers  from 
the  schools  of  their  training,  the  Scotch  and  English 
hanks.  In  LSOi)  the  chief  offices  of  eleven  Canadian 
hanks  were  lilled  hy  sometime  I'lnployes  of  the  Hank 
of  British  North  America.  The  practice  of  com- 
mercial hanking,  to  whieh  the  Bank  of  ^Montreal 
had  steadily  adhered,  was  not  without  its  influence. 
It  was  a  simple  princii»le,  hut  usually  trustworthy, viz., 
to  reipiire  that  the  paper  on  whicli  loans  are  granted 
shall  represent  an  exchange  of  commodities,  or  an 
increase  of  commodities.  At  the  last,  hecause.  per- 
liajys.  it  is  chief,  must  he  named  the  fruits  of  over 
forty  years  of  local  experiiMice.  'J'he  British  North 
American  hanks  displayed  extraordinary  stahility 
through  the  commercial  crises  ami  financial  i)anics, 
which  left  such  serious  traces  in  the  United  States; 
hut  they  met  theii' losses,  and  the  wai'uings  of  1S;}7-:}S>. 
lS48-r)().  isr)?-')'.)  were  all  for  the  safe  and  prudent 
conduct  of  husiness. 

The  one  hank  in  Canada,  which,  relying  in  the 
prestige  of  its  name  and  its  coniu'ctions  with  the 
government,  followed  in  the  midst  of  the  competi- 


Sumvuini  anil  licriciv 


:J55 


tioii  of  lyno,  the  sanu'  iiolicv  as  in  the  (hiys  when 
alone,  autocratic,  and  all  powerful,  it  dispensed 
ucconunodation  to  ri)pei'  Canadian  ^-entry.  hind 
speculators  and  British  factors,  soon  met  its  just 
fate.  And  suhsecpient  yeai's  hroujjjht  retrihuti(»n  or 
misfortune  to  others,  so  that  of  the  eij^ht  l)anks  in 
Canada  in  Ibi.")!.  only  four  remain:  of  the  five  in  New 
Brunswick,  three  are  left.  Hut  we  should  add  that 
it  was  the  shareltolders  who  sufT"ere<l.  in  examining 
the  (piestion  of  the  security  offered  by  Caiuulian 
hanks,  it  has  appeared  that,  since  Confederation,  the 
total  loss  of  principal  ultimately  sutfereil  hy  creditors 
of  banks  workinj^  under  J)ominion  le<;islalion.  has 
been  less  than  s-J.(M)0.()(MI.  'I'he  record  for  the  years 
precedinj;-  lStt7  is  hardly  li'ss  admirable,  there  beinj^ 
no  failures  in  Nova  Scotia  m'  Lowi'r  Canada,  while 
in  New  Brunswick  the  double  liability  of  share- 
holders saved  the  biinks'  creditors,  and  in  r[»i»er 
Canada  the  failure  of  the  Bank  of  I'pper  Canada 
was  the  only  one  which  'utlicted  considerable  loss. 

The  etticiency  of  the  l)anks  durin;^  this  period, 
their  services  to  the  country,  have  received  about 
all  the  iiositive  desci'iption  that  the  subject  permits. 
An  ojiinion  mi^ht  be  reached  by  considering^  the 
friction  with  which  their  operations  w<'re  (.'arried 
on.  much  as  the  security  afforded  is  estimate«l  by 
the  loss  inflicted,  but  for  this  opinion  there  can  be 
no  exact  expression.  Spread  ovei-  so  lon;^  a  period, 
the  study  mit;ht  become  a  justification  of  banks. 
With  the  ethic-s  of  the  (piestion.  we  are  not  con- 
cerned; for  us  it  is  sufficient  that  banks  are  estab- 
lished in  almost  every  community  where  there  is 
accunnilation.  connnerce  and  credit.  The  fact  that 
they  get  business  and  pay  p.rofits,  indicates  the  need 


H'  -  I 

•i    :  U 

fif 

4'.  ,t 


f 


I        . 


m 


3:)6 


riw  ('(tuadiun  nankimj  Si/s/cm,  1817-1800 


for  their  services,  and  tlieir  value.  In  the  next 
chapter,  iiiori'uver.  the  important  aspects  of  tlie 
(piestion  of  elliciency  oii^lit  to  appear  in  an  exam- 
ination (»f  the  characteristics,  ]»ractical  working  and 
possibilities  of  tiie  Canadian  hanking  system  as  it  is 
now  estaldislied. 

11.  In  reviewinyf  the  history  of  hanking  lejjfislation 
since  C'(»nfe(h'ration.  an  American  is  at  once  impressed 
hy  the  freedom  from  |)artisan  purposes  or  sectional 
feeling  displayed  in  the  treatment  of  hankin;;  (lues- 


tlon^ 


Without    that   freedoni.  it   would   have  i)een 


dillicult  fairly  to  wei^h  the  evidence  collected  by  the 
committees  ol  1S('»7-(5'.I.  and  the  discussion  carried  on 
in  all  i>arts  of  the  country.  Without  it.  it  would 
have  been  dilliciUt  also  to  defeat  the  dangerous  and 
reactionary  proposals  of  tlu'  ( Jovernment  in  which  Sir 
John  iiose  was  Minister  of  Finance,  'i'heirs  was  a 
stroll};-  party,  and  had  tlm  party  discipline  been  per- 
fect, it  would  have  carried  the  Minister's  measures 
through  to  the  statute  book. 

Three  otlu'r  forces  a[)pear  to  have  had  a  benelicial 
influence: 

{<()  Competition  has  (quickly  exposed  wi'ak.  care- 
les.s  or  untrustworthy  management:  it  has  hastened 
the  withdrawal  or  loss  of  imi>rudently  invested  capi- 
tal; it  has  made  the  conditions  of  success  more  severe, 
and  so  has  immensely  increased  the  necessity  for 
vigilance.  cauti(»n  and  care.  Especially  through  the 
reciuiremeiit  of  daily  settlements  has  the  stake  depend- 
ing on  the  constantly  liquid  character  of  a  bank's 
a.ssets  been  indefinitely  raised.  (/>)  'J'he  salutary 
effect  of  compeiition  has  been  aided  by  the  trenchant 
criticism  which  the  increasing  clearness  and  fulness 
of  the  monthly  return  has  facilitated,  criticism  by 
each  banker  upon  the  others,  and  by  the  public  upon 


Siimttiiirif  and  li^'ricfr 


357 


them  all.  Public  opinion,  moreover,  lias  Itrt^n  ex- 
ticnicly  sensitive  to  the  defects  tluit  hank  failnres 
have  expoKed  in  the  estahlished  system  of  safe^'nards. 
And  aftersnoh  events  as  those  in  which  tl»e  Mechanics' 
l^>ank  or  the  Central  and  London  I'anks  ti^nred.  pnh- 
lic  demands  f((r  reform  have  been  ])rompt.  ^'t-neral 
and  «'mi>hatic.  (c)  The  thir<l  force  is  in  the  action  of 
the  hankers,  particularly  at  the  time  of  the  P>ank  Act 
revisions.  They.  api)arently.  have  hren  inthienced 
l»y  appreciation  of  their  own  |»rivile^es.  remend)rance 
of  certain  jtainful  hut  heneticial  experiencrs  in  times 
of  depression  and  tronhh-.  and  a  desire  to  remove 
from  the  hanking  system  the  causes  of  pojjular  dis- 
satisfaction. Theii'  own  su^jj^estions  in  tiio  direction 
of  imj)rovement.  ami  the  reasons  they  j^ave  for  keep- 
ing the  important  features  of  the  hank  charters  and 
hanking  system  in  force  when  the  (,'onfe(leration  he- 
Kan,  have  been  described  at  some  length.  The  united 
efforts  of  the  bankers  as  individuals,  and  as  repre- 
sentatives of  their  customers  and  shareholders,  have 
certainly  been  productive  of  some  results.  Their 
services  will  be  esteemed  accordinjjf  as  one  approves 
the  banking  system  which  they  have  helped  to 
preserve. 

We  cannot  rightly  conclude  as  to  the  attitude  of 
Parliament  towards  Canadian  banking  in  its  national 
period  from  the  debates  alone,  or  from  the  numerous 
projects  that  have  been  supported  at  different  times 
in  the  House  of  Commons.  As  the  statesman  is 
jud;;('(l.  not  by  what  he  says.  i)Ut  by  what  he  does. 
so.  to  a  ^reat  extent,  must  we  conclude  as  to  Pa»"lia- 
ment.  Its  action  was  satisfactorily  described  by  Mr. 
Foster  in  1S9<>:  "It  seems  to  have  been  the  purpose 
of  Parliament  not  to   interfere  violentiv  with   what 


1r 


u 


.1: 


[1 


li::' 


i<( 


■?"■:■'. 


!    i 


' 


;}os 


Tin'  ('ii)uiili<ni  ItaukiiKi  Si/s/rni,  1817-1800 


we  may  call  tliu  natural  growth  of  the  l>aiikiii^ 
systfiii  ill  this  country."  "It  also  appeared  to  he 
tilt'  (h'sirc  of  I'arlianicnt  to  hcd^c  around  tlic  hank- 
ing system  which  then  prevailed  l)y  severer  condi- 
tions of  charter,  hy  rejj^ulat ions  whi(di  should  lie 
especially  restrictive  upon  the  (h-alinu's  (d"  l)anks. 
especially  with  their  own  stock,  and  with  the  stock 
of  other  hanks,  to  foster  the  laying  hy  of  reserve 
capital,  and  hy  a  judicious  re(iuirenient  of  returns, 
to  perfect  the  system  and  i-ender  it  as  safe  as  jiossi- 
hle  witliout  interfering  voluntarily  with  the  general 
principles  u|)on  which  hanks  had  heen  operated  from 
the  earlier  time.'"' 

(hie  of  the  strongest  contrasts  which  this  whole 
recoi'd  i)resents  to  sucdi  a  liistory  of  hanking  as  that 
of  the  United  States,  is  in  the  continuity  of  the  pro- 
gress. There  has  heen  no  recurring  struggle  to 
estahlish  a  great  governinei  hank,  no  I'pidt'niic  of 
wild-cat  hanking,  no  reJe<'tion  of  one  system  for 
e.xperiment  with  another.  A  certain  continuity, 
witliout  (htuht,  can  he  discovered  in  the  history  of 
any  hanking  system.  Men  (h)  not  wholly  hreak  with 
the  past  or  huild  on  foundations  entirely  new.  Hut 
down  to  the  present  day  Canadians  liavi'  always  lield 
to  the  i)lan  on  whi(di  were  framed  the  statutes  gov- 
erning their  first  l»anks.  A(hlitions  have  heen  made, 
new  safeguards  against  puhlic  loss  introduced,  limits 
restraining  corporate  activity  have  been  narrowed  in 
some  parts  and  widened  in  others,  a  few  arrange- 
ments for  the  advantage'  of  the  government  iia^'' 
heen  attached,  hut  never  has  there  heen  a  successful 
attempt  t(»  tejir  down  the  fair  work  of  the  first 
builders  and  out  of  the  ruins  construct  anew.     When 

'l^ebateH,  xtmiprd.  I81«>,  p.  '_'1.'3">  < '  .«^y. 


Summoni  unil  Review 


;»r.u 


(h'fccts  have  jippcartMl  in  its  structure,  Caiuulians 
have  not  fortliwitli  contlcniiuMl  tlif  luiita>;<'  of  tin- 
l)ast.  and  petulantly,  illo^ically  swept  it  away  to  make 
room  for  some  new.  untried  afl'air.  arranged  on  difTer- 
eiit  lines:  after  study  of  the  trouble  they  have 
endeavored  hy  some  slight  stren^^thonin^.  some 
little  alterau<<n.  to  keep  and  enhance  the  certaiu 
henefits  of  what  they  already  possessed.  The  ju'esen'!; 
Bank  Act  is  umiuestionahly  better,  more  cart-fnl.  nmre 
stron^^ly  and  scii'Utifically  drawn  than  any  previous 
lej^islation;  the  hankini;  practice  is  mor«'  sound — the 
steady  improvement,  save  with  respect  to  investors' 
profits,  is  l;-irdly  U'ss  remarkahh-  than  tin-  continuity 
discei'uihle  in  its  developnu'iit—  yet  the  ecouiinic 
chai-acter  of  the  functions  jx'rmitted  the  hanks,  and 
tiu>  methods  of  their  fulfilment  are  the  same  under 
tlie  Dominion  system  of  IS'.tO  as  under  the  provincial 
charters  of   IS'Jl. 


■V, 


)t 


■(fi '] 


fr  ji 


iiiif 


CHAI'TKIi  X 

ON  Tlll<:  IMtKSKNT  \V(H{KIN(i  ()F  TIIK 
SVSTK.M 

In  following  thr  course  of  hankiiij^  Icj^isliitioii  in 
Caimda,  it  litis  Itccn  nci'cssary  to  ^ivc  only  sucli  occa- 
sional rcfci'cncc  to  ({in'stituis  of  hanking  liistoiy  and 
the  economic  history  with  which  it  is  interwoven,  as 
was  essential  to  un  understanding^  of  the  main  ohject 
of  the  iiuiuiry.  The  foutth  part  of  a  complete  study, 
so  fui'  as  it  relates  to  existing-  conditions,  will  foi-m 
the  theme  of  this  chapter.  It  is  proposed  now  to 
look  at  the  Canadian  hanking  system  in  its  present 
development,  to  examine  some  of  the  principles  of  its 
organization,  and  consider  certain  of  its  practical 
Workings. 


5;.')4.  — (11  AHA(  TKKI/ATION    (>K    TlIK    SVSTKM 

The  iifroup  of  thirty-eij^ht  joint  stock  corporations 
charti-red  by  the  Parliament  of  Canada  and  now  in 
operation,  may  he  <lescril)ed  as  a  decentralized  sys- 
tem of  relatively  large,  joint-stock,  commercial  and 
industi-ial  hanks,  privately  owned  and  managed,  hut 
w«)rking  under  a  uniform  law,  and  subject  to  the 
supervision  and  discipline  of  the  J)ominion  govi'rn- 
ment.  They  have  the  power  to  establish  branches. 
They  have  the  privilege,  exclusive  as  against  indi- 
viduals and  other    corp»)rations,   of  issuing    promis- 


('/i(ir(irtfrt:iifi<iii  nf  the  Si/y/nii 


861 


sniv  iiiiti's  ill  (It'iiuiniMiitinMs  ol"  >*.'»  jiikI  tmiltiph'M 
tlu'i't'of.  for  circiilatinii  ns  iiiniicy;  Itiit  tlwv  issiu* 
tlit'in  siiltjfcf  to  lilt'  prior  lini  of  tlM>  note  holder 
against  tlir  wliolf  of  the  Itaiik's  assets,  and  the  doii 
hh'  liahility  of  its  shareholders,  and  iiinler  sjiecial 
restrictions  as  to  the  immediate  and  ultimate  pay- 
ment of  the  notes  and  their  i-edeinption  at  par  at 
various  points  throughout  the  country.  Tin  y  have 
the  usual  powers  to  carry  on  hiisiness  in  discount, 
(h'posit.  exchan^fe.  other  ne^otial)h'  securities,  coin 
and  hulliou.  They  are  ^iveii  wide  privile;jfes  in  the 
mattered"  loaning  upon  the  security  of  commoditi»'s 
in  process  ^A'  manufacture,  in  store,  on  the  way  to 
market,  or  passing;-  into,  out  of.  or  through  tiic 
country  hy  land,  rail  oi-  water:  they  may  loan  upon 
the  collateral  security  of  the  hoiuls.  stocks  and  de- 
l)ontures  of  muuicii»al  aud  other  corpiuations.  or 
puhlic  securities  of  any  (h'scription;  I  ut  they  may 
not  loan  ui)on  the  security  of  stock  of  I  heir  own  or 
any  other  Canadian  hank,  or  of  real  estate  or  mort- 
gages or  of  completed   shijts. 

Their  Joint  aii<l  transferahle  stocks,  and  the  limileii 
liahility  of  investors  in  these  corporations,  have  an 
ohvious  e.\])lanatioii.  Without  tJK^m  it  would  he  im- 
possihle  to  secure  the  capitals  on  whi(di  the  hanks 
are  grounded.  As  it  is.  their  capital  comes  from  all 
l)arts  of  the  Hritish  dominion,  the  stock  lists  showing 
that  some  is  held  at  the  very  antipodes,  in  India,  the 
Cape  Colony  and  Australia,  as  well  as  in  ( Jreat  I5ritain. 
Tliat  each  hank  is  chartered  was  partly  due.  origi- 
nally, to  the  desire  of  proprietors  to  secure  the  limi- 
tation of  their  liahility  for  the  dehts  id"  the  hank  to 
the  amount  of  their  suhscriptions  merely,  'i'lu-  lia- 
hilitv  was  extenih'd.  as  we  have  seen.    t(»   twice  the 


I 


\- 


Iv        , 


I! 


't'li 


;{»;•.'  Thf  Cnnnfiiini  liiinkiuy  Siislem,  1817-1890 

ainoiiMt  of  suhscrihcnl  shares,  in  compliance  with  iin- 
periul  re^iihitioiis  resjiect inj^  colonial  hanks,  and  the 
re<(nirenient  was  afterwards  modified  and  improved 
nnder  Confederation  as  a  safe^^nard  for  their  j^eneral 
credit(»rs.  Where  the  sharelndders  are  exemjit  frt)m 
the  additional  liahility.  as  in  the  case  of  the  Hank  of 
British  North  Am«'rica  and  the  French  hank  c/j  cr)//<- 
iihiikIHc  (principal  partners  lial>le  to  an  nnlimited 
extent.  couniiiimlHnirfs  to  the  amonnt  of  theii*  siih- 
scriptions  only),  the  precaution  is  taken  of  i'e»|nirinj^ 
that  note  issue  in  excess  of  7;")  per  cent,  of  the  unim- 
paired paid  capital  shall  he  cov«'red  hy  deltentures  or 
money  deposited  with  the  Dominion  government. 

'i'hat  each  hank  must  i»e  separately  charten'd, 
though  all  are  suhject  to  the  same  general  Hank  Act, 
is  due  part!y  to  the  historical  tendencies  in  Canadian 
le^Cif<'aln)n  with  n-spect  to  hanks,  partly  t<»  the  prin- 
ciple g«'nerally  followed  hy  English  governments,  to 
restrict  the  issue  of  notes,  intended  to  circulate  as 
money,  to  those  to  whom  the  power  is  expressly  con- 
firmed. ^Ve  have  imiuired  info  the  origin  of  this 
power  of  ('anadiati  governments,  and  found  that, 
rather  than  fr<)m  the  mint  ]»rei'ogative.  it  is  prohahly 
derived  from  the  general  powers  of  supervision  and 
regulation  exercised  hy  the  state,  and  the  conditions 
which  parliaiUMits  hav*'  heen  ahlo  to  exact  in  return 
for  the  concessions  desired  hy  hank  i>i'omot»'rs.  In 
Canadian  law,  all  companies  estahlished  under 
Dominion  legislation  are  incorporated  hy  sp»'cial 
charter,  although  in  some  (;ases  tli(>  charters  of  n 
group  id'  similar  corporations  are  continued  hy  a 
general  act  applying  to  the  whole  group.  The  dis- 
posal of  hank  charters  has  n.-ver  heen  marked  hy  the 
fraud  or  partisanship  which  make  the  record  of  some 


I 


('hiir(irirri~itfioii  uf  tin'  Syntcm  'i*'>'-'> 

of  the  .viJierican  <'<>inni<»nw«'altlis  so  <liscnMlital»l«'  in 
this  respect,  and  caused  tlic  people  of  utiicis  also 
to  forbid  to  tlicir  legislatures  tlie  estalilislinieiit  of 
l)anks  of  issu' .■  to  re(|uire  rtfei-enduni  of  tin-  ijue^- 
tioii  at  the  next  t^eueral  elcciidii.-  or  to  make 
all  hut  adaptations  of  ••free  haiikinir."  to  leyii- 
iate  the  note  issue,  uncoiist  it  ul  ioiuii.  Net  ciiaiters 
have  he«'ii  easily  »d)tained.  ton  ensily  ul»tiiin<'d. 
Since  Confederation  forty-fmir  chartt-rs  have  liecii 
j^ranted,  and  only  >ive  propfised  charters  repoi'te<l 
on  adversely  hy  the  ctuuniit tees  on  private  hills. 
Twenty  of  the  forty  fmii-  luive  heeii  forfeited  fur 
non-user.  Moreovei'.  the  authorized  haukin;;'  capi- 
tal of  Caiwida  has  never  heeii  fully  suhscrihed 
(lurinj.f  the  last  twenty  seven  yeais.  or  «'nlirely  paid 
up.  Any  new  hank  may  now  he  chaitered  so  Mmii 
us  the  projectors  convince  tlie  disintei'ested  coinmit- 
tt'O  <»f  ministers  and  iuads  (d"  (h'part  nients  known  as 
the  Treasury  h<tard,  that  their  intent  ions  are  honest 
and  that  they  luive  tiiumcia!  hackinj^.  A  favorahU- 
report  l)v  the  Treasui'v  Hoard  or  tlie  Honse  Commit- 
tee  on  liankinj;'  un*l  Curreni'y  nutkes  the  hill  a  (Jov- 
ernmeiit  measure  and  ensures  its  passing.  The  Cana- 
dian hanks  have  enjo\«'d  no  monopoly  aj^aiiist  the 
entraiwe  of  new  competitors  hnud  Jidr  into  hanking;, 
nor  hav«'  the  shareholders  proliti'il  from  investments 
in  stocks  which  others  mi;^ht  not  olttain.  That  it  has 
he<'n  dillicult  for  enlerprisin;;  iiut  needy  speculators 
to  start  a  ••  hank  '"   in   order  tn  Imrrow   the  money  of 

'  Ark,iiiH:is,  Ciilifoiiiia,  nrt-unn,  .Ncvinlii.   Tex:i>  ami  WuHliin^'tiii. 

IlliiKiis,  MiHsonri,  Inwa,  Kansas,  Miilii^'an  aii<l  Wix'ciiisin. 

N«\v  Y'^rk,  I't'iinHyl\aiiia,  lii'liaiia,  Illiiiiiis,  .Miilii^raii.  luwa, 
KansaH,  Nortli  iiiid  Smitli  Haknla.  <'f.  .Inlm  |)c  Witt  Waiiicr, 
"Ti  II  per  cent,  tax  on  Hlate  hank  n"ti  -,"  S|k'»'c1i  in  tlif  lloii:.!-  nf 
He|in'Hentiitivt'.s,  Jil  .Innc  IS'M,  \\'a8liint.'tnii,  jip.  I'.ii,  :\h. 


\' 


fc  i|: 


'i. 


ii  t  ■ 


\^L-l 


'■¥■ 


±- 


;iG4 


The  Coiailian  /iiiukiiii/  Si/sfem,  1817-1890 


otlicrs  for  their  own  i)iiri)oscs.  or  tliat  inv<»stors  liave 
^jaiu'Ml  fi-oiM  ilie  inci'cascd  i»ros])i'rity  and  inipr  »"«m1 
liiisi!it'ss  wliich  tiin<'  and  wise  niana^vnicnt  l»ronji;ht 
to  tlif  hank  \\\r\  licljicd  t<»  start,  arc  two  Tacts  rcscm- 
hUn^'  th<'  cfTccts  of  cxchisivi'  privih'^cs.  to  which 
jtrohahly  no  one  will  oltjcct. 

The  *•  coMuncrcial  ami  imlnstrial  "  cliaractcristics 
of  tiic  chartered  l>anks  are  the  rcsnit  as  well  of  the 
restrictions  in  the  statut«'s  };overnin^  theui  as  of  the 
traditions  of  Sccttch  and  Kn;;lisii  commercial  hankinjj^, 
which  were  early  hron;^ht  o\er  to  Canada  and  eventn- 
ally  hecame  well  estahlished  jirinciples  (d"  Canailian 
hankinj^  practice. 

Tlu'  early  chartei-s  limited  the  vahie  (tf  real  estate 
whicdj  the  hanks  mi;;ht  hold,  and  ever  sinc<'  the  law 
has  forhidden  hanks  to  en;;a}^e  in  trade  or  to  take 
mortj^aj^t's  or  lands  e.\cci)t  as  addititmal  security  for 
(hd)ts  previonsly  contracted.  In  the  sense  in  which 
1  shall  use  it.  imlnstrial  will  also  connote  what  is 
sometimes  e.xpiesserl  as  aj^^ricult ural.  The  Canadian 
hanks  are  a^^ricnltnral  (piite  as  :MU<d»  as  they  are 
commercial,  hnt  their  loaning  to  fi;  'ners  is  ordinarily 
conditioned  hy  the  jtrospect  of  an  increase  of  com- 
modities upon  which  it  will  he  possihie  to  I'ealize  s(»on. 
or  of  such  sales  as  I'esnlt  in  speedy  retui'us.  In  land 
hanking-  the  chartered  hanks  do  not  enj;a}jfe.  The 
ultimate  I'cason.  of  course,  is  in  the  necessity  for 
Itanks  of  issue  and  deposit  to  invest  their  funds  only 


in    easuy   and   q 


uickl 


V   convertihle    secui'ities. 


Tl 


le 


hest  form  (d'  such  assets  is  producers"  and  traders' 
notes  and  hills  of  ex(dKin)4t'.  j;iven  for  loans  of  circu- 
lating- capital,  wherewith  to  assist  prochiction.  facili- 
tate exchany-e  and  anticipate  returns.  Another 
cause    is    the    dilVereiitiation   (d"    cri'dit    institutions. 


Tlir  /'riiirijilf  iif  I.arijr  lUmks 


3G5 


'I'licro  arc  ohvious  a<lviintii<x<'s  to  all  coiu'cnit  <1  in 
Iravinjj^  land  Itaiikiii^  to  tlu'  sprciali/cd  skill  and 
oxpcricnc'i'  of  loan  companies  and  l)nildinj^  socit'iics. 


jj.")."). —  iiiK   ri{iN(ii'i,i';  oi"   i,.\i:(.K   kanks 

The  Caiunlian  hanks  ai'c  I'c  .v  in  nnndicr.  hnl  as  in- 
dividuals thcii'  cstahlishnicnts  aif  many,  their  hiisi- 
iH'ss  and  capitals  larj^e.  In  the  I'nited  States,  which 
has  a  population  sonn-thini;'  over  thirteen  times  as 
numerous  as  t hat  of  ('anada.  there  aie  in  operation 
iihout  :{.71M'i  hanks  (d'  the  national  system  alone."  that 
is  to  say.  one  hundred  times  as  many  hanks  as  in 
Canada.  Their  avera;;e  paid-up  capital  is  only  si  i:!.- 
<»-4,S;  that  (d"  the  Canatlian  hanks  s|  .OHI.'JSC.  or  twelve 
times  (I  I  .'.))  as  lar;;e:  their  total  capital  is  •^■."4r).*JSS.- 
7S*i.  not  (juite  nine  times  that  of  the  t'amidian  hanks 
on  the  :{(ith  .lune.   IS'.M.  s(i|  .-):.<). 47:5. 

The  lij;ures  will  indicate  the  mcanin;^  of  lary;e  as 
usee!  in  this  connection.  'I'he  adje<'tive  adopted  ap- 
plies jiai'ticularly  to  the  hanks  domiciled  in  Oiitario 
and  (^)uehec.  The  twenty-four  corporations  whose 
head  oHices  are  in  these  provinces  have  a  total  autho. 
ri/.cd  capital  of  !?.">(?. 7 Hi. •'•(ii;,  of  which  s;»'J.:{Sl).-ll7  are 
paid-in.-  Seven  of  these,  live  hein<^'  French  hanks  in 
the  province  of  (j>uehec.  ha\e  capitals  of  less  than  a 
million  dollars,  and  (d'  the  l''reuch  hanks,  four  have 
less  than  s.^Od.odo.  of  the  lar^ci-  hanks,  four  have 
capitals  of  more  than  four  and  a  half  millions  and  a 

'  Report  of  IIm' ('(»Mi|pticpllt'r  (if  llu- (iimiicy,  ah    Pficinticr,  I 
\Vasliiiij,'toii,  I8I1:;,  !>.  :•_'. 

i'he  HtatisticH  an- frniii   "Kcpdit   uf  tbc  riiartni' 1  I'.niiks,  ct 
for  tlio  iiiuntli  <•HlliIl^;  ihc  :Usi  He  ■fiiitn'r,   1^'.":;,  and  an-  lur  tin* 
hiiHineHH  (lay  of  tliat  iikiiiiIi 


s'.i:'. 


\  {if 

m 


i'.   S 


;i  |l 


'1 


':,.f 


la>t 


:]GG  The  ('(inndian  liank-iwj  Si/steni,  1817-1890 


total  of  sys.SfUJ.nc.C:  cijrht.    hctwoen  ^1 .4<)().(tO()  and 

s-i.:)(H».()()(»j,ii(l  jitotalot!i;l4,MI.<»>^:i:  and  five  bctwc.-n 
s|.()(»(i.(K)(i  and  s  1. •_>:,( I. (M to,  with  a  total  of  sn.sno.ooo. 
Nova  Scotia  has  two  hanks  capitalized  for  nioic  than 
a  million,  the  snni  of  the  two  hcinj^  s'J.Ooo.odO;  three 
for  sHoi I. <)()()  and  over,  total.  sl.Tou.ooo.  and  tliree  for 
s-ir.(».0(i()tos:i()().(M»().  total  SSOD.TSS.     'i'he  three  hanks 


domiciled  in  New  j-Jrnnswick   1 


Kive  a  total  capital  of 


sSbd. ()()();  the  one  in  Hritish  Colnmhia.  s'i.OL^d.OOO, 
and  the  two  in  I'lince  Kdward  Island.  si>47.:{Sy. 
Twenty  of  the  thirty  hanks  in  operation  the  1st  Jan- 


naiy.  |Sl)4.  controlled  sr)4.(i7?.(;."^l».  /, 


c..  SN.07  per  cent. 


of   the   total    hankin;;-  capital    of   the  Dominion,  then 
'I  he  ei^^hteen  snuillei-  hanks  are  partly 


so  I. .')4(i. .")'.»:{. 

dne  to  incorp(»ration  of  the  small  heal  institntiiais  of 
the  Maritime  Provinces  with  thesyst<in  of  the  Domin- 
ion after  Confederation,  partly  to  the  demand  for 
hanks  of  a  local  charact<'r.  strenj;! hen»'d  as  it  lias 
been  hy  nmnici])al  jtride  and  ami)ition.  partly  t(»  the 
endeavors,  which  those  who  madetliem  wonld  donht- 
less  call  ]>atriotic.  to  estahlish  hanks  in  the  province 
of  Quehec.  owned  and  oflicered  hy  persons  of  Krench 
hlood.  and  linally  to  the  ener^-y.  hnt  rather  (pialilied 
snccess.  of  certain  and»itions  persons  in  slarlinij  an<l 
carryinj;-  on  a  hank  under  their  own  direction  and 
manaf;"ement. 

In  the  main,  therefore,  the  system  is  one  (»f  a  small 
nnndterof  lar;;e  hanks.  The  increased  capital  recpiirt-- 
ment  of  the  act  of  ISIMI  is  a  le;;al  steji  in  the  direction 
lit  making-  the  or;4aMi/ation  of  new  hanks  more  difli- 
cult.  Xo  new  hank  has  enli  icd  the  field  since  Ih^i."). 
Investors  prefer  the  stoi-k  of  the  older  hanks  that 
have  the  advanta;;-es  of  hwj^e  rests,  wide  connections 
and  firm  puhlic  confidence.     Of    the   fourteen    hanks 


iil 


Tlw  /'riiiciple  of  Litnjr  Hanks 


367 


cluirttTcd  ill  ISSH  to  ISn:')  inclusive,  only  five  cnnld 
coiiilily  with  the  iTcinirtnicMls  of  th"  I'.iink  Act  and 
iu'tuiiiiy  bcj^jin  business:  tliri'e  cf  ilie  tive  iuive 
jiiready  been  put  in  li(|uidati<tn,  two  in  IS^7  and  one 
in  iSlKi.  It  may  be  expected  'hat  hereafter  botlj 
peopb'  and  Parliament  will  be  disposed  closely  to 
scrutini/.e  applications  I'oi'  new  charters.  The  enthu- 
siasm till-  new  banks  prevailiu};'  in  the  lifties,  the 
early  seventies  and  in  lhh:?-li'>.'^t'i.  has  abated.  Com- 
pared to  acciinuilat i(»ns  and  the  supply  of  loanable 
capital,  there  is  less  intense  demand  for  it.  Security 
and  the  motives  of  tlie  (b-positor  are  now  wi-ij^hty 
considerations.  Assistance  to  i)roduction  and  the 
development  of  the  country's  resoUI'Ces  have  lost  their 
former  pi'edonnnant  importance.  The  teudeut-y  of 
the  number  *d'  i)anks  to  remain  stationary,  or  even  to 
diminish,  so  pronounced  in  Kn;^lish  and  Scotch  bank- 
inj.f,  is  thought  a  factoi'  of  consiileraide  inlluence  in 
the  present  Canadian  situation.  ,  If  the  existing; 
bank<  keep  pace  with  the  development  of  the  country 
by  placin;^'  brancdies  in  ihe  new  and  ;;i()win;^-  districts. 
it  is  hi}^-hly  probable  that  in  ihe  future  increased 
ne«'<ls  for  bankin;.;'  capital  will  In  supplied  through 
them:  that  bankin;;'  extension  will  be  chielly  etVeeted 
by  additions  to  tin-  capital  stocks  already  established, 
rather  than  by  the  formation  of  new  ones. 

The  almost  absolute  certainly  of  siu-h  a  <le\elop. 
meiit  is.  on  the  whole,  reassurin;^'.  .\s  banks  ;;row 
oldei'  lliey  usually  ;^ain  in  strennth  and  staiiility. 
Ki;;ht  of  the  ten  failures  since  l.'^CiT  have  been  of 
lattdy  or;;ani/ed  banks:  only  one  bad  had  a  lifi-  id' 
fifteen  years,  one  of  nine,  anotbei-  of  eij^ht.  ihree  of 
four  years  and  one  of  four  months.  The  piinciple  of 
lar;;e  banks,  furt  hei'inore.  has  been  adopted  by  almost 


i 


m 


•  I 


)  *         \ 


I', 


368 


The  Vannditm  /itinkint/  Sj/sfnti,  181  7-1  ^''0 


all  the  ('(Hintrics  of  Kiiropc  It  is  cxciiiiil,  '  <1  in  the 
riiitcd  Kingdom,  as  well  by  tlir  Hank  of  KiiH:laiwl- 
as  It.v  the  Joint -stfM'k  and  Irish  and  Scotch  hanks.  It 
is.  \vitln)Ut  doiiia ,  iKM'cssai'ily  coiiiM'cti'd  with  inancli 
hankint;:  in  Kiirtn.!'  and  Kni;li,ind  tlic  plan  of  favor- 
ing: lai'f^c  hanks  is  usnally  conihincd  with  the  cstai)- 
lishnicnf  of  a  sin<4l(' pi^Mhtniinant  central  hank,  cnjoy- 
in;;-  special  privilet^es  and  chise  relations  with  the 
^•overnnieiit,  and  in  a  ;;reatei' oi-  less  dej^ree  ninlei'  its 
nianay^enient  oi*  conti'(»l.  in  some  countries.  «•.(/.. 
Russia,  wholly  owne<l  hy  the  state.  In  the  conti- 
nental sense  tlu'  Canadian  hanks  ai"e  not  ••lar^c:'" 
there  is  not  hi  iiiiih'  dcs  iKitiifiK's.  i»ut  Id  jil iukI Hr 
d' I  III issloii .  There  is  no  i)ri vilej^'ed  hank,  the  monop- 
oly feature  is  ahsent:  hetween  the  hanks  there  is  a 
constant  competition.    As  Sir  Krancis  llincks  phrased 


it,  '-tliey  are  all  on  the  same  footing. 


Tl 


le  ^'overn- 


nient  stands  towards  the  hanks  in  a  supervisory. 
re;4ulative.  ami  if  need  he.  discijtiinary  ]iosition. 
Sujtervision  must  not.  however,  he  confused  with  the 
technical  inspection  or  with  the  jtower  to  interfere 
with  hank  manajj^i'ment  and  lejjfitimate  husiness. 
The  oidy  hases  foi*  government  action  are  the  monthly 
returns,  the;  special  returns  that  may  he  calle<l  for, 
and  the  penal  provisions  of  the  Hank  Act.  Canadians 
have  thoujj^ht  that  tlu>  strict  observance  of  this  stat- 
ute, and  certain  i)unishments  for  violating'  it.  are  host 
secured  when  government  is  independent  of  the  sub- 
jects of  tiupei'vision  and  eniiiterested  in  tlieir  gains. 
Ther(!  is  then  no  natioua'  oi"  government  bank:  the 
Hank  of  Montreal  is  mertdy  the  depository  of  the 
government,  tlieir  bankei's  and  tiscal  agents.  The 
banks  are  all  ]»rivat(dy  owned  and  managed  in  the 


The  PriHn'/ilf  nf  Lnryr  Haid-.i 


369 


intoivsts  of  tlioir  shart'lioldcrs  by  oflicci's  wluiiii  tlie 
scvci'al  l)ojjr(ls  of  directors  ai»itoiiit. 

It  is  ill  coMnfctioii  witli  inanaj^cinciit  that  one  tliuls 
a  Tiiarkcd  advantage  in  lar^^c  banks.  ( )r^'aMi/.ation 
and  consolidatirtn  tend  to  increase  ellieienev.  and 
l<»\vei'  tile  cost  of  indivi<lnal  services,  as  well  in 
bankiiij;'  as  in  other  activities.  A  lai}^^e  hank  with 
larj^e  funds  is  ahle  to  spend  whatever  may  he  neces- 
sary to  se«Mire  men  Well  endowed  with  talents  of 
management.  I'nder  their  f^nidance,  at  the  head,  it 
can  em]tloy  in  the  management  of  its  hranches  men 
who.  actiiii;  on  their  own  i-espoiisihilities.  c.  ij.,  as 
manaj^ers  of  local  hanks  handliiifjf  no  {greater  funds, 
niif^ht  heniiefinal  totheii*  tasks.  There  is  added  ef!i- 
ci<'ncy  at  the  center,  a  saviiij,^  in  ('Xpense  at  the 
branches.  And  of  this  doiihle  <;ain  a  larj;'e  jtart  is 
not  infre(|nently  devoted  to  fnither  ac(iuisition  of 
marked  bankinj;- ability.  wherel)y  still  to  inci-easethe 
efficiency  of  the  bank's  organization,  the  safety  of 
its  bnsiiiess  and  the  profits  which  the  otlivr  results  will 
l»rumote.  'i'lieii  a^ain.  the  directorate  of  a  lar^e  l»ank 
is  more  likcdy  to  contain  a  greater  pi'dportioii  of  (|iiite 
wealthy  men  than  a  small  one.  and  these.  i»r<'sunui- 
bly,  are  somewhat  abler,  as  careful  l)nsiness  finan- 
ciers, than  others  with  less  tauf^ible  evidence  of  eco- 
nomic success.  A  larg'e  bank,  finally,  has  access  to 
a  wide  territory  and  a  jj^reat  variety  of  conditions  in 
whi(di  to  train  its  officers.  i>y  transfer  fnun  one 
brunch  to  another  they  gain  in  ox])erieiice  and  xcrsa- 
tility,  are  freed  from  local  pi'ejndice.  ac(iuire  fami- 
liarity with  the  different  kinds  of  cnstomers  and 
securities  with  which  the  diversified  business  of  the 
bank  is  concerned,  and  present  to  the  bank  itself  a 


■I'  'M 

\  1' 


i  : 


It; 


t 


If 


I 


■:ii  1 1 


■  V 
'■■)' 


24 


:{70 


The  Cnnu'iinii  linnhinij  Siislcm,  ISlT-lHlH) 


wiilrr    flxiicc  of  well    known    men    from    wlmni   to 
sclcci  iiicunilx'Mis  of  its  lii^^licr  oMircs. 

A  si'coiid  iidviiiita^c  of  lart,'c  Itaiiks  is  tln-ii"  ^irat 
coMiinantl  (»f  capital,  tlicir  powtr  to  talcf  whatever 
jtPoptT  Itiisiiicss  may  lie  olV'-icil  ilicm.  their  aliility 
to  ;i('eoiMmo(|iite  their  ciisf ojiiers  to  aii.v  necessary 
amount.  With  this  comes  tlie  practical  possihiiity 
of  rest rictin;.^  a  cnstonier  to  one  iiaiik.  <if  re(|uirinjjf 
that  his  l)ankin.i;' account  he  kept  with  hut  oiu'insti 
tulion.  Wluitever  advantaiic  accrues  from  restrict- 
ing; the  ci'edits  of  manufacturers  ami  nuM'chants  to 
tile  limits  which  hankers  well  acquainted  with  the 
tinancial  position  of  their  customers  decide  are  safe, 
may  he  fully  realized  in  a  systen>  of  lariic  i)anks.  If 
the  custoUK'r  is  dissatislied  with  the  re;(idar  line  of 
credit  granted  to  him  he  may   remove  his  account   to 


another    haul 


A    ('anadian    horrower   who  secures 


advances  from  two  or  more  hanks   is  i-ey; 


11  rd 


ed   with 


susjucion  ami  is  likely  to  have  his  custom  refused  hy 
some  of  them  when  his  practices,  as  they  must  he, 
are  discovered.  I'ndera  system  <d">inall  hanks,  such 
as  the  luitioual  l^anks  (d"  the  Cuited  States,  the  prac- 
tice  (d'  hanking'  with  a  sinnle  couceru  is  (dten  inipos- 
sihle.  The  le<;itimate  needs  of  a  single  horiower 
(d'lell  exceed  the  funds  at  the  disposal  ( d'  local  iusti 
tutituis.  and  should  these  he  adeipiate  the  national 
hank  is  forhiddeu  to  had  more  than  ten  |>er  ceul.  of 
its  paid-up  capital  sto(k  to  any  person,  tii'ni  oi- cor 
poratiou.  except  on  hills  ol'  e\(dian;^'e  and  coninier- 
cial  paper  owned  hy  the  hmiowers.  The  national 
l)auks,  accordinj^ly,  are  ohli^cil  in  sonu'  cases  to  re- 
discount the  commercial  paper  (dVeieij  |||i'lt|,  III  ii|||i'|'S 
to  suhniit  to  theii- customers  ha\lnu  lllnl'i'  ||li|||  it||i* 
hanker.     A  lliircj  t'sciute   is  opem-il    to  tlie  l)orroW((f 


The  Prinn'jik  of  hit'iji'  limihs 


371 


in  the  iM»ssil)ility  of  furwardinj^  liis  paiMT  to  smnc 
liill-l)i-(ik<  r  ill  till'  iicMiTsi  liiij^f  r\\\ .  nr  in  N.w  NOrlc. 
;ni(l  ^'ct  liiii;  it  discoiiiitt'd  tlnif.  In  .iiiy  ciisf  I  Imtc 
is  ;i  (•inii|ilicali<>ii  added  to  1  lie  ail  ilicial  st  nicl  nif  of 
cifdii.  and  incoinplcliiifss  in  tiic  knowledge  wliicli 
tlif  Iciidfi'  slioiild  lia  V)' of  the  dtdilor's  position.  In 
the  first  and  last  <-as«'s  an  iiitcnm-dialf  scries  of 
debtors  and  creditors  may  enter  l>ct  ween  the  oiij^inal 
liorrowcr  and  the  nltiniate  lender,  This  e.\a)^;;erates 
the  sciisitivt'iiess  of  credit  hy  '.vidciiinj;'  the  area  of 
interdependence,  a  lesiilt  (jiiile  iiimecessary  in  a  sys- 
tem of  hirj^e  hanks. 

Third.  Iary:e  hanks  haveyficat  sta.hility  andst  reii^^jtli. 
The  security  they  afford  to  note  holdei's.  dt  posifors 
and  other  creditors  is  nsuaily  ^n)ierior.  The  jiropor- 
t  ion  of  capital,  rest  ami  reserve  liahility  of  share- 
holders to  the  hank's  ;;-en  era  I  liahilit  ies  is  not  necessa- 
rily y^reaterthan  in  thecase  of  small  hanks.  There 
is  no  reason  why  piihlic  coiilideme  in  the  lar^t* 
inst  it  ntions.  as  expressed  l>y  mde  circulation  and 
deposits,  should  he  less,  proporl  ioiialely .  than  it  is 
in  the  small  hank.  The  liahilit  ies  of  the  Canadian 
hanks  to  shareholders  and  pnhlic  are  ahont  1.114 
times  their  paid-in  cajtital.  those  td'  the  national  hanks 
-l.r»S  times  their  capital.  The  chances  are.  as  i'ai<^- 
li>h  experience  shows,  that  the  laij^cr  hank  will  en- 
joy the  ;.jreater  Imsine^s  for  each  nnit  of  capital 
foundation.  <  'nly  one  of  the  ten  iii<ii|\ciit  ('an/idiaii 
hanks  had  a  capital  (d'  over  a  million  dollars.  l''oui  liad 
capitals  of  s(i(i(i.(i()(i  nr  less,  and  the  other  live  capi- 
tals (d'  less  than  s|iHi.()ii(».  The  cniiipariHon  of  -j-JH 
insolvent  national  hanks  out  o|  the  j.lCKt  or^aini/.ed. 
with  IJii'  ten  Insolvent  ( 'a  nn  dial)  hanks  out  id'  TiTi  some 
llllll'  ill  !!|!lTHli<»!!  HJnce    jHH),  U  IIM  ('!!||||i<Hic(ih  Ul  ulj, 


t.. 

I 


372  The  CaniulUtn  lUinkimj  Si/.otcm,  1817-1890 

Tho  thirty nVljt  surviving  banks  liuve  over  r»0(»  dif- 
ferent estaMislinimts,  anil  to  lie  fair,  the  (•(•nii»aris(in 
must  \h'  made  Ix-tween  tlic  numltei-  nf  estaldislinitiits 
al1Vctt'<l  l»y  insolvency.  Willi  one  exception  the 
Canadian  hanks  in  c|ncstion  \v«>re  small  and  tlieir 
hran(dies  lew  in  nnmher.  It  is  hecanse  tlie  inanaK*'- 
nient  <d'  a  lar^c  liank  is  presnmahly  aide,  ami  its 
stake  d<-|)(>ndin<;-  on  can>  and  cantioii  so  ^^'eat.  that 
the  creditors  (d'  a  lar;;e  hank  enjoy  a  hij^h  decree  of 
secnrity.  I*'v»ry  instinct  of  sidf-preservatioii  ile- 
mands  that  unnsnal  risks  or  specnlativt-  invcstmeids 
he  avoided:  that  safe  rather  than  hrilliant  hanking 
he  the  j^nidinj^  policy.  When  htsses  are  incnrred.  a 
lar^^e  hank  can  hear  an<l  write  otV  de'anlts  that 
would  delinitely  swamp  a  small  hank.  Take  for 
e.vamiile  the  occasions  on  which  the  liank  of  Mon- 
treal, though  mt  explicit  as  to  the  amounts,  has 
acknowledued  the  loss  of  a  million  (h  liars,  the 
tim»'  that  the  .Meridiants'  Mank  reduced  its  stock 
fi'om  nine  millions  to  six.  or  that  tiie  <  >ntarii.  I'ank 
wrote  $1. *)(»<). (MM)  from  its  caiiital.  or  a^ain  the  re  luc- 
tion  of  !f^l.  l(M),(MMi  on  account  of  had  d(d>ts  made  in 
th«'  rest  of  the  Canadian  Jiank  of  Commerce  in  ISS7. 
Lastly,  puhlic  criticism,  a  valuahle  restraint  in 
any  system,  is  more  acute  and  concentrati'd  when 
hanks  are  lary^e.  Contidence.  as  a  condition  prece- 
dent of  hanking' ilevelopmeut.  sht)uhl  he  widl  founded 
and  reasoiiahle.  The  monthly  exposure  of  each  hank's 
condition  hy  the  puhlication  of  its  rei)ort  to  the  ji;ov- 
ernment  has  heen  re<iuire<l  since  lsr>4.  The  contin- 
uvd  expansion  of  the  Return  hy  retjuin'nient  of  more 
thorough  aiuilysis  an<l  ininut<'  details  is  suflicient 
evidence  of  the  henetits  ohtained  from  this  device. 
Today,  not  only  the  (duiracter  of  eacli  hank's  assets 


It;; 


'I'lip  /'rinri/ilr  of'  t.itrii"  llmik^ 


:J73 


<     i 


ami  (l«'htH.  how  mnnv  arc  srcuml  \)\  rcil  tstiitc.  Iiow 

many  ill vnwlnc.   .tc.  practirallx    its   .'xad    coikU- 

lii»ii,  liiii  also,  ill  j^irat  iiicasdn'.  lln-ir  rchilions  to 
•  •acli  iiilicr.  may  In-  asccrtaimMl  from  tlif  •  siatiiiiciit 
of  liaiiks  acting;  imdcr  cliartor."  Tlio  piiltlicity 
makes  ^ovcrniiH'iit  sii|M'ivisioii  jtossililo.  aiwl.  in  iiuiiiy 
casos,  forms  a  <li(liciilt  olistacl*'  to  vjoiatioii  «>f  cliarlcr 
n'>t  rictioiis,  IMiMic  prrss  ami  compctit  ivr  liaiiks 
art"  watclifiil  crities  of  flic  rctiiiii.  and  coiiclusKtHH 
readied  liv  outside  oliservers  or  t lie  III  s|iii|ier  writers 
are  i;iv<n  |trom|il  and  full  expression  ea  h  inontli. 
lint  where  hiinks  are  small  and  many,  thf  attention 
of  the  critics  tends  to  he  dissipated,  their  interest  to 
l»e  diniinisluMl.  To  concentrate  criticism  its  ohjects 
must  he  few.  and  if  the  i)anks  tire  few  they  inUHt  be 
hii-K^c. 

A  comparison  of  the  hanks  of  Canada  ami  tliosc 
of  the  rnitetl  States  in  the  respect  just  discussed 
wonid  not.  it  is  likely,  he  a  vciv  sei'ioiis  arraignment 
of  the  American  plan.  For  the  l;ist  sixty  years  at 
h'ast.  llie  Anu'rican  de\  elo]»nieni  ihoij^^h  its  tenden- 
cies have  heen  nnit|ne.  seems  to  have  hcen  steadily 
on  the  lines  of  local.  ]>art  icniarist  ic  hankin^j.  tlio 
ditVerent  i>arts  of  t  he  ini»ii<taiy  and  credit  orjj^ani/a- 
tioii  heiii);,'  united,  nf  course,  through  an  iiitri(*ate 
system  of  extdiaiiues.  the  minor  centers  in  the  (dear- 
injjf  honse  and  redemption  cities,  and  the  j^reat  center 
in  the  city  of  New  York.  The  .\meiican  national 
hanks  would  sntVer  most  from  the  comparison  with 
respect  to  the  command  of  fiiiuls  ami  the  power  '.o 
accommodate  customers  pertainiii;^  to  individuals  of 
the  system.  They  are  not  suhject  to  such  widespread 
or  kci'U  puhlic  criticism,  hut  tiiis  is  offset  hy  the  useful 
thouj^h   sometimes    misleadin;;'   ollicial   inspection,   u 


fe 


"' 


!«■ 


<A^^.O. 


IMAGE  EVALUATION 
TEST  TARGET  (MT-S) 


1.0    [fi 


2.8 


I.I 


1.25 


If  0^ 


IM 
IM 

1.8 


U    i  1.6 


1 


V] 


<9^> 


A 


/>< 


'3 


°^i    / 


o 


^ 


/ 


>(S^ 


Photographic 

Sciences 

Corporation 


23  WEST  MAIN  STREET 

WEBSTER, NY.  M580 

(716;  872-4503 


4^ 


1 


6^ 


374 


Tlie  Canadian  Ban1cin(j  System,  1817-1890 


safeguard  wbicli  is  practicable  ^a  any  sense  only 
where  a  bank  is  confined  to  one  locality  and  office. 
Then,  too,  the  creditors  of  most  of  the  banks  are 
chiefly  local,  and  persons  in  other  districts  are  com- 
paratively uninterested  in  their  condition.  For  sta- 
bility, if  that  is  to  mean  the  continued  solvency  of 
all  the  banking  offices  of  a  system,  and  the  continued 
power  to  protect  solvent  and  worthy  customers  at 
critical  moments,  the  Canadian  banks  have  a  some- 
what better  record.  As  to  security,  an  exact  com- 
parison on  the  basis  of  loss  suffered  by  creditors  is 
not  possible.  The  affairs  of  123  insolvent  national 
banks  are  not  yet  finally  closed.'  Even  if  the  pro- 
portion borne  by  total  loss  of  principal  in  thirty  years 
to  the  total  liabilities  of  the  existing  banks  of  the 
national  system,  should  appear  to  be  less  than  that 
borne  by  Canadian  losses  in  the  last  twenty-seven 
years  to  the  present  liabilities  of  the  Canadian  banks 
to  the  public,  the  conclusion  as  to  security  would  not 
be  unreservedly  in  favor  of  American  banking. 
Operation  under  state  laws  has  usually  been  a 
resource  for  those  who  felt  hampered  by  the  severer 
conditions  of  the  National  Bank  Act.  In  Canada, 
however,  the  conduct  of  joint-stock  banking  in  all 
its  branches  is  possible  only  under  the  legislation  of 
the  Dominioii  A  rather  careful  estimate,  moreover, 
points  to  the  probability  that  when  ascertained  the 
proportion  borne  by  loss  suffered  from  banks  under 
federal  laws  is  higher  than  thac  borne  by  the  loss 
suffered  from  Canadian  banks  subject  to  the  Bank 
Act.^      Another  aspect  of  the   question   of  stability 


»Comptvoller's  Report,  18',);;,  pp.  L'Od-L'i;^. 

^Tlie  proportion  of  approved  "^h""'as  ii<;ainst  insolvent  national 
banks  which  will  never  be  paid,  will  not  fall  short,  probably,  of 


i. -re 


The  Principle  of  Branch  Banking 


375 


comes  to  view  in  the  fact  that  since  18J57  there  has 
been  no  general  suspension  of  specie  payments  in 
Canada,  or  need  for  resorting  to  such  devices  as 
clearing  house  certificates,  checks  payable  only 
through  the  clearing  house,  or  the  unauthorized  issue 
of  scrip. 


g  r)G — THE  PRINCIPLE  OF  BRANCH  BANKIXfJ 

For  the  purposes  of  this  section,  branch  banking 
may  be  defined  as  the  prosecution,  under  the  control 
of  the  parent  bank,  and  upon  its  general  capital  and 
means,  of  a  business  in  banking  credits,  at  offices 
established  in  places  other  than  the  domicile  of  the 
parent  bank.  It  is  most  practicable  and  profitable 
when  the  parent  bank  is  large,  and  when  it  enjoys 
the  privilege  of  issuing  notes  upon  its  general  credit, 
e.  f/.,  the  Scotch  banks,  the  Australian  banks,  the  two 
Banks  of  the  United  States.  The  Canadian  statutes 
which  permit  it,  and  the  Canadian  practice  of  using 
the  power  to  establish  branches,  agree  with  the  prin- 
cipal banking  systems  of  Europe,  of  Great  Britain 
and  the  British  colonies.  Branch  banking  has  been 
widely  extended  in  Canada:  on  the  1st  June,  1894, 
there  were,  exclusive  of  city  branches,  Aiu)  establish- 
ments of  the  chartered  banks  in  2.")9  different  locali- 
ties.' The  number  of  bi-anches  established  by  each 
bank  varies  somewhat,   accordin-^  to  its  cai)ital,  the 

125,000,(100.  The  liabilities  of  the  national  banks,  less  eaiiital  stock 
and  surplus  fund,  were  $2,i.'S4,272,l(i4  on  the  I'.Lst  October,  bS9:;.  Our 
computation  of  Canadian  losses  since  LSH?  was  $l,!i22,0n(t ;  the  total 
liabilities  of  the  banks  to  their  creditors  on  the  ^Ust  December, 
18!i;'.,  $2bs,(i(;2,yor).  The  percentage  in  the  lirst  case  is  1.004;  in  the 
second,  .874. 

'See  note  1,  next  page. 


Ill 


i\ 

■!;;  ; 


it  i* 

i 

■  ■ 


•ill 


1. 


376  The  Canadian  Bankiwj  System,  1817-1890 


character  of  its  business  and  the  policy  of  its  man- 
agement. The  Bank  of  Montreal  has  thirty- eight 
branches  in  Canada,  and  New  York,  Chicago  and 
London  offices;  the  Bank  of  British  Columbia  has 
ten  branches,  of  which  four  are  in  the  United  States. 
The  Canadian  Bank  of  Commerce  has  fifty-one 
branches  and  an  agency  in  New  York;  the  Merchants' 
Bank  of  Canada  has  thirty  branches  and  a  New  York 
agency.  The  Bank  of  Nova  Scotia  has  twenty-six 
establishments  in  Canada,  an  agency  in  Chicago  and 
another  in  Kingston,  Jamaica.  The  Molsons'  Bank 
has  twenty-three  branches;  the  Merchants'  Bank  of 
Halifax  and  the  Imperial  Bank  of  Canada  each 
tv/ent3^-two  agencies.  Twenty-two  of  the  banks 
have  ten  or  more  offices,  eight  but  one  each,  and 
eight  from  two  to  nine  offices. 

Certain  advantages,  botli  to  the  Canadian  public 
and  to  their  banks,  of  which  branch  banking  is  pro- 
ductive, may  be  summarized  under  the  following 
heads. 

I.  The  collection  and  distribution  of  loanable  cap- 
ital from  and  to  different  parts  of  the  country  are 
accomplished  at  the  minimum  of  expense  and  with 
the  maximum  of  thoroughness.     When  the  instru- 

'The  territorial  distribution  of  tliese  branches  is  best  indicated 
specifically: 


Branohea  in 

Ontario 

Quebec 

Nova  Scotia 

New  Brunswick 

Manitoba 

Britisli  Columbia  .... 
Northwest  Territory.. 
Prince  Edward  Island 


Places 

jn4 

47 

.",8 

1(1 

S 

I 

(i 


i  No.  of  Offlecs 
i  24H 

82 

\         r,2 
I        HI 

i  19 

a 

8 
7 


\m 


405 


The  UanJcera'  Register,  Chicag.j,  1894,  pp.  840-3.55. 


ii 


'Hf 


•  ) 


The  Princijile  of  Branch  Banking 


377 


ment  of  both  the  services  is  a  single  organization 
such  as  a  large  bank  with  numerous  branches,  the 
task  is  better  performed,  it  would  seem,  and  certainly 
at  less  cost  than  when  two  or  more  banks  are  neces- 
sary to  the  same  series  of  services,  and  each  mu«t  be 
rewarded  for  its  part.  The  same  Canadian  nk 
that  collects  capital  from  the  older,  accumulating 
districts  in  the  form  of  deposits,  transfers  it  to  the 
centers  of  industry  and  commerce,  or  to  those  districts 
for  whose  development  and  activities  more  capital  is 
needed  than  can  be  supplied  from  the  local  stock. 
The  process  of  intelligent  distribution  is  facilitated 
by  the  knowledge  of  local  conditions  had  by  the 
parent  bank  from  the  officers  of  its  branches,  and  the 
consequent  ability  to  loan  when  the  demand  is  great, 
with  the  same  safety  as  a  local  lender.  Where  the 
banks  are  merely  local,  the  specialized  knowledge 
frequently  lacks  the  necessary  funds.  The  banks  of 
Massachusetts,  e.g. .  may  have  hard  work  to  find  sat- 
isfactory investments  at  4  per  cent.,  while  Colorado 
banks  are  offered  more  good  discounts  at  10  per  cent, 
than  they  can  take.  The  rates  of  discount  on  good 
paper  in  different  parts  of  the  United  States  at 
arbitrary  dates  in  1891,  1892,  1893,  are  a  further 
illustration.' 

Differences  in  the  United  States  would  probably  be 
much  greater  were  it  not  for  the  action  of  western 
banks  as  agents  in  placing  loans  for  sister  banks  in 
the  East;  between  the  rates  in  western  towns  of  less 
importance  and  those  in  the  financial  centers  of  the 
East,  the  differences  are  much  greater  than  the  above 
figures  for  the  larger  markets  indicate. 

But  the  Canadian  banks  .^c  iiot  local:  their  inter- 
ests and  their  activity  are  bounded,  not  by  the  confines 

^See  note  1 ,  next  page. 


\^ 

Ii: 

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\i'n 


378  The  Canadian  BanUny  System,  1817-1890 

of  a  single  town,  but  by  the  borders  of  an  entire 
province  or  of  the  Dominion  itself.  They  borrow  cap- 
ital where  they  can  get  it  and  loan  it  where  it  is 
needed.  ''So  perfectly  is  this  distribution  of  capital 
made,  that  as  between  the  highest  class  borrower  in 
Montreal  or  Toronto,  and  the  ordinary  merchant  in 
the  Northwest,  the  difference  in  interest  paid  is  not 
more  than  one  to  two  per  cent."-  On  loans  of  eijual 
security  the  interest  charged  will  not  vary  one  per 
cent,  tile  country  over,  whether  the  debt  is  contracted 
in  Halifax,  Quebec,  Hamilton,  Calgary  or  Vancouver. 

'  Rates  of  Discount  charged  on  time  loans  in  different  cities  in  tlic 
United  States  durinj?  the  weei<  preceding  the  daj'  on  whicli  they 
were  reported  in  Bnidstreet'ii: 


1890 


iwil 


]«!« 


Sept.  27  May  ;{0Nov.21iApr.  ll! 

'  \  '  i 


Boston I  .")@7 

Philadelphia \      ti     ' 

Chicago '  ()(?'i8 

St.  Louis !  7@8 

Detroit C^C'i" 

Kansas  City i  SCL'JlO 

New  Orleans 8 

St.  .Joseph "@8 

Memphis 8 

Portland,  Ore 

Galveston '       8 

Seattle 

Lcuisville j  6@.7 

Milwaukee.   7 

f'incinnati ;      (1 

Providen('e i  (ifefU 

Omaha !       8 

JJaltimoro .")i@(i 

Pittsburg !  G@7 

San  Fiancisco I       7 

St.  Paul 8 

Houston 8 

Denver 


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Dec.  ITMnr.  2.'i  Sept.  -• 


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10 

-P).  E.  Walker,  "  Banking  in  Canada,"  in  Jonrvil  of  the  Cnmtdiiin 
Bankers'  Aswiation,  vol.  i,  p.  IS. 


The  Principle  of  Branch  Banking 


379 


This  unqualified  advantage  may  be  summed  up  as 
a  national  equalization  of  the  rate  of  interest  through 
economies  in  the  cost  of  transferring  capital,  and  a 
highly  effective  system  of  arbitrage. 

II.  Ample  facilities  are  afforded  to  small  towns, 
isolated  borrowers  and  the  country  generally.  For 
the  purposes  of  good  investment  a  branch  has  n-- 
sources  limited  only  by  available  funds  of  the  grejit 
bank  of  which  it  is  a  part.  The  petroleum  i)roducers, 
the  great  wheat  farmers  in  the  Nortliwest,  the  distil- 
lers in  small  Ontario  towns,  or  the  packing  houses 
and  lumber  firms  in  little  New  Brunswick  villages, 
have,  almost  at  their  doors,  agencies  of  the  greatest 
banks  in  the  Dominion,  ready  and  able  to  advance  on 
the  security  of  unmarketed  products  or  goods  in 
course  of  manufacture,  to  buy  their  sterling  exchange 
or  to  discount  the  paper  arising  from  other  transac- 
tions already  concluded.  Produce  sliippers  hav4 
access  to  like  conveniences,  no  matter,  practically, 
how  remote  or  unimportant  the  district  in  which  they 
operate.  No  worthy  industry,  whatever  its  distance 
from  the  centers,  need  drooj)  for  lack  of  banking 
facilities.  The  agricultural  districts  are  provided 
with  places  near  at  hand  foi-  the  deposit  of  their 
savings,  and  they  are  given  libei-al  accommodation, 
at  seed  time,  before  harvest  and  whenever  else  there 
is  a  prospect  that  the  use  of  the  loan  will  provide  the 
means  for  its  payment.  The  degree  in  which  the 
description  ■•agriciultural"  applies  to  Canadian  l)anks 
is  seldom  noticed  in  accounts  of  the  system,  but  it  is 
increasing  from  year  to  year.  In  ISSl,  when  there 
were  only  two  less  banks  than  now,  the  number  of 
branches  was  1287.'    In  1890  there  were  444  branches, 

'George  Hague,  "  Ijanking  in  Canada,"  in  Proceedings  of  tlie 
Convention  of  the  American  Bankers'  Association,  N-^w  York,  isM, 
p.  99. 


:  i  ■ 


■!■:        i 


'lili* 


'     ' 


fi 

if 

: 

II 

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t 

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^i 


380  The  Canadian  BanMng  System,  1817-1890 

and  22.")  of  these  were  in  towns  without  the  office  of 
anotlier  chartered  Ijank.'  Correct  judgment,  it  is 
believed,  will  acknowledge  from  the  Canadian  banks 
services  to  the  agricultural  development  of  their 
country  as  great  as  those  for  which  the  Scotch  banks 
have  been  universally  esteemed. 

As  from  the  first,  there  arise  from  this  group  of 
advantages  due  largely  to  branch  banking,  a  level- 
ling of  the  rate  of  interest,  and  also  increased  econo- 
mies of  time  in  the  transi)ortation  and  marketing  of 
goods. 

III.  The  risks  of  investment  are  distributed  and 
varied,  and  the  banks  are  more  certain  of  regular 
profits.  Unlike  that  of  the  national  banks,  their 
prosperity  is  not  largely  dependent  upon  the  fortunes 
of  single  towns  or  sections.  Nothing  is  more  empha- 
sized by  Canadian  bank  managers  than  the  inevitable 
condition  of  a  bank's  gain  or  loss,  viz.,  the  prosperity 
of  its  customers  as  a  whole.  Under  the  branch  sys- 
tem, however,  the  losses,  bad  harvests,  or  depression 
in  one  part  of  a  bank's  territory  are  set  off  against 
the  good  crops  and  more  successful  issue  of  the  year's 
business  in  another.  This,  to  a  great  extent,  was 
the  case  with  losses  incurred  by  the  banks  with 
branches  in  Manitoba,  after  the  Northwest  boom  col- 
lapsed in  1882,  and  dozens  of  other  examples  might 
be  cited  from  the  reports  of  shareholders'  annual 
meetings.  It  may  be  objected  that  all  this  involves 
having  too  many  irons  in  the  fire,  just  as  it  may  be 
said  that  in  affording  ample  facility  to  the  borrowers 
of  his  neighborhood  a  branch  manager  may  exceed 
the  limit  of  safet}'.  But  the  first  objection  will  not 
hold  if  the  organization  of  the  bank  is  thorough;  the 

'Garland,  ut supra,  p.  ?>o. 


The  Principle  of  Branch  Banking 


381 


second  will  bo  due  to  faults  in  judgment  from  which 
no  man  is  sure  to  bo  free.  Branch  banking  is  still  a 
case  of  not  carrying  all  tho  oggs  in  one  basket:  the 
gain  in  stability  and  the  strength  to  survive  local 
disasters  is  enormous. 

IV,  The  establishment  of  branches  gives  the  jjarent 
bank  opportunities  to  extend  its  note  circulation.  As 
circulation  is  issued  as  a  general  charge  against 
assets,  country  banking  thus  makes  possible  a  special 
addition  to  the  credit  loaning  i>owers  of  the  banks, 
which  in  so  far  economizes  material  capital  without 
loss  of  its  beneficial  effects.  The  banks  gain  further 
from  the  slightly  higher  rate  of  interest  (an  extra  one- 
half  to  one  and  one-half  pei  cent.),  secured  from  coun- 
try customers,  partly  because  of  the  technical  inferi- 
ority of  the  security  they  offer,  partly  because  of  the 
less  severe  competition  in  such  localities.  Yet.  valu- 
able as  their  services  are  to  the  community,  many  of 
the  country  offices  return  but  slight  profit.  Many 
could  not  be  kept  up  were  it  not  for  the  increase  of 
circulation  which  they  promote  and  the  possibility  of 
saving  interest  on  till-money  by  using  unissued  notes 
for  the  purpose.  These  features  of  bank  note  issues 
like  the  Canadian  will  be  discussed  more  fully  in  <j  08. 

V.  A  fifth  advantage  lies  in  the  centralization  of 
bank  management,  and  nationalization,  so  to  speak, 
of  banking  policy.  I  have  called  the  Canadian  sys- 
tem decentralized,  because  there  is  no  enormous 
central  bank  domineering  over  all  the  others,  and 
because  there  is  competition,  much  of  it,  too,  in  every 
department  of  banking.  In  another  sense  the  banks 
are  centered;  seven  of  them  with  capital  of  814,560.- 
958,  have  their  head  offices  in  Toronto;  eight,  with 
capital  of  $27,756,266,  in  Montreal;  three  banks  with 


P 


m 


) 

! 
t 

l. 

\  'i 

I .  H 

k 

h 


889 


The  Canadian  Bankivcj  Syi^fem,  1817-1890 


capital  of  !?4, 900,000  are  domiciled  in  Quebec,  and 
five,  with  stocks  amounting-  to  >>4,;}00,00(),  have  their 
liead  ottices  in  Halifax,  Twenty-three  banks  with  a 
total  capital  of  !i^^)l,^)17,'i24,  are  sui)erint(!nded  from 
the  two  ft)cusin^'  i)()ints  of  Canadian  commerce  and 
finance.  Their  superintendence,  however,  is  not 
more  concerned  foi-  the  advantage  of  traders  and 
producers  in  these  localities  than  of  those  elsewhere. 
The  business  of  the  banks  comes  from  every  part  of 
the  country;  the  obligation  to  "take  care  of  custom- 
ers" is  as  sti'ong  in  the  lumber  village  of  northern 
Ontario  as  in  St.  James  street,  Montreal.  Here  comes 
the  nationalization  of  banking  policy;  the  interests 
and  responsibilities  of  the  banks  are  wide;  the  meas- 
ures they  take  at  one  time  and  another  must  be  broad 
of  puri)Ose  and  generally  beneficial  to  correspond. 
In  times  of  stringency  or  impending  panic  they  must 
heed  the  welfare  of  their  province  or  of  the  entire 
counti'y:  upon  it  depends  their  own.  The  branch 
system,  moreover,  prevents  to  a  great  degree  the 
antagonism  of  interests  in  a  panic  or  time  of  con- 
traction between  a  great  number  of  establishments, 
each  selfishly  intent  on  self-preservation,  and  anxious 
to  store  away  all  possible  cash  against  the  threatened 
day  of  trial.  The  reserves  of  branches  are  the  re- 
serves of  parent  banks;  the  country  offices  have  the 
same  interests  as  the  city  establishments ;  the 
branches,  further,  are  subject  to  orders  from  the 
head  offices  at  the  centers.  There  may  be  hoarding, 
but  reserves  are  not  scattered  through  the  country; 
they  are  kept  at  the  centers  where  the  heaviest  pay- 
ments are  eventually  set  off  against  each  other. 
There  is  no  parallel  in  Canadian  experience  to  the 
American  crisis  of  1893,  and  so  far  as  that  action  at 


™l 


77(6  Principle  of  liranch  lianhing 


383 


cross  pui'pof'os  hy  city  and  country  bunks  which  pre- 
cecU'd  th(^  ciihninution  of  tlie  difficulty  is  concerned, 
u  parallel  would  b(!  inipossihle. 

VI.  Branch  banking  tends  to  i)roinote  more  judi- 
cious and  inijjartial  administration  of  the  lending  ])()W- 
(M's  of  tlie  bank  than  local  banking.  The  confidential 
character  of  banking  transactions  is  better  secured. 
The  manager  of  a  branch  has  ordinarily  received  his 
training  in  a  variety  of  situations.  He  is  likely  to 
deal  as  a  hiitikcr  with  the  clients  of  his  branch,  and 
not  to  be  exposed,  not  to  be  subject,  to  the  influences 
of  friendship,  family  ties  and  business  connections; 
in  all  important  questions  he  must  consult  his  head 
oflfice.  Instead  of  liaving  his  affairs  discussed  by 
his  acquaintances,  })erhaps  by  his  comi)etitors  on  the 
board  of  a  local  bank,  the  applicant  for  credit  re- 
ceives impartial  treatment  from  the  remote  and  dis- 
interested general  manager  on  the  basis  of  his  own 
and  the  branch  manager's  statements  of  the  facts 
necessary  to  a  decision. 

VII.  The  educative  effect  of  this  type  of  bank 
organization  is  not  without  importance.  A  certain 
improvement  in  the  commercial  habits  of  the  people 
with  whom  the  business  is  carried  on  is  usually 
ascribed  to  the  introduction  of  any  sort  of  banking. 
They  show  greater  promptness  in  discharging  pay- 
ments and  other  contracts,  more  careful  calculation 
of  business  chances  and  stronger  habits  of  thrift. 
The  familiar  example  of  the  Scotch  has  been  over- 
used perhaps,  although  their  banking  system  seems 
peculiarly  calculated  to  promote  these  results.  What 
special  benefits  of  this  character  the  branch  system 
favors  have  been  touched  upon  in  the  preceding  para- 
graph; they  are  largely  due  to  the  excellent  training 


1 

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||:, 

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i\ 

384 


The  Uunudian  liankhuj  SijHlem,  1817-18!»() 


of  braiK!)!  iimnugors,  their  luck  ot'  i)rojii(lic«'  and  the 
l)()fisil)ility  llnouyfli  them  to  brin^  close  to  the  people 
the  exact  and  thorou^jh  methods  of  the  hij^hest  type 
of  urban  banking.  Nearly  every  Canadian  bank  con- 
ducts a  "saviufifs  (lej)artnient"  as  an  imjjortant  part 
of  its  mechanism  for  the  collection  of  the  spare  capi- 
tal of  the  country.  They  also  pay  interest  on  depos- 
its, seldom  on  current  balances  of  active  accounts, 
but  always  practically  on  deposits«vhich,  being  pay- 
able after  notice  or  on  a  fixed  day,  are  regarded  by 
the  makers  in  the  light  of  investments.  These  de- 
posits, on  the  ;Ust  December,  IHOJJ,  were  to  deposits 
payable  on  demand  as  1,078  to  025.  By  this  means 
the  inducements  held  out  to  thrift  are  immensely 
strengthened,  the  depositing  habit  is  cultivated,  and 
both  the  country  and  the  banks  gain  from  the  utili- 
zation of  well  nigh  every  dollar  not  required  for  the 
immediate  purposes  of  the  owners. 

The  principles  of  branch  banking  and  of  large 
banks,  and  the  advantages  to  which  they  conduce, 
are  not,  as  the  reader  has  doubtless  already  com- 
plained, without  their  reverse  side.  But  certain  evils 
arising  in  a  system  of  which  they  are  characteristic 
have  been  noticed  in  the  historical  sketch  of  the  pre- 
ceding chapters.  To  realize  the  possibilities  of  the 
Canadian  system,  each  bank  must  have  a  strong  and 
thorough  central  organization,  able,  cautious  and 
vigilant  management,  a  trained  and  disciplined  staff, 
rigid  inspection  by  officers  of  the  principal  establish- 
ment, specially  detailed  for  the  purpose,  and  the  pur- 
pose both  to  observe  the  Bank  Act  and  otherwise  to 
keep  within  the  bounds  of  safe  and  legitimate  bank- 
ing. Where  any  of  these  are  unduly  deficient,  the 
shareholders  are  sure  to  suffer  loss,  but  through  com- 


Till'  I'riiiri'jiJi'  of  lininch  Hitnkinn 


•m> 


|)(;titi(»n  uiul  other  sufcjifUJirds,  it  will  hccoiiu'  so  soon 
upparcnt  that,  us  a  rule,  lh«'  crt'ditorH  of  the  biiik 
will  1k!  saved  from  injury. 

Another  caution  may  hi'  ventured  witii  regard  to 
the  attention  given  to  hankinj^  profits  under  tho 
(!anadian  system.  The  apparent  one-sidedness  dis- 
appears when  it  is  seen  that  the  advantage  of  the 
i)anks  is  also,  in  the  truest  sense,  the  advantage  «if 
the  pui)li{'.  Ministers  and  lej^islators  have  c»ft(>n 
remarked,  '•  P)anks  are  chartered  for  tlu*  henetit  of 
the  i)uhlic."'  They  find  the  real  justification  of  tlu'ir 
hankiufif  system,  witlunit  (h)ubt.  in  the  efTiciene^>  witli 
whi(di  it  promotes  that  henefit.  not  in  the  success 
with  which  the  hanks  amass  gains  for  their  share- 
holders. Hanking  in  (-ana(hi.  Ave  nuist  repeat,  is  no 
monopoly.  'i'o  bi-ing  foi-ward  the  service  which 
hanks  afford,  at  least  the  normal  return  from  enter- 
prises of  like  difficulty  and  risks  must  he  assured  to 
investments  in  their  stock.  Whatever  increases  tlie 
security  of  hanking-  investments  and  tlius  diminishes 
the  premium  for  risk,  wluitever  extends  the  fields 
from  wliich  the  banks  can  i-eceive  tlieir  jji-ofits  or 
increases  the  efficiency  of  cai)ital  by  permittinj;  a 
larger  volume  of  credit  to  be  based  upon  it.  dimin- 
ishes, pro  tdiifo,  the  cost  of  the  individual  services 
which  the  banks  afford.  The  competition  between 
Canadian  banks  is  of  the  most  free  and  active  variety. 
The  value  of  the  bank's  services,  therefore,  cannot 
rise  above  their  cost — the  lowest  return  winch  will 
induce  sufficient  expenditure  of  capital  and  labor  in 
the  production  of  such  services.  That  cost  is  ex- 
pressed for  the  public  by  the  rate  of  discount. 
Reduced  cost  means  reduced  rate  of  discount,  and  in 


im 


m 


2r, 


k  iii  •  ' 


38G  'Hie  Canadian  liankimj  Si/s/ein,  ]  817-1890 

this  great  respect,  at  all  events,  the  interest  of  the 
hanks  and  tlie  interest  of  the  puhlic  are  one  and  the 
same. 


v^  57. — THE  CANADIAN  SYSTEM  OF  NOTE  ISSUE 

Each  Canadian  chartered  hank  has  the  power  to 
issue  its  promissory  notes,  payahle  to  hearer  on 
demand,  for  circulation  as  money.  The  exercise  of 
this  power  is  restricted  hy  no  requirement  to  hold  a 
minimum  reserve  against  the  notes  issued,  or  to 
secure  them  hy  the  pledge  of  definite  assets:  hut  it 
is  confined  to  the  corporations  to  whom  the  jwwer  is 
expressly  confirmed,  and  they  may  not  issue  in  excess 
of  their  unimpaired  paid-up  cai)ital  stock.  Except 
in  so  far  as  they  are  the  first  charge  upon  all  the 
asset;,  of  an  insolvent  hank,  the  notes  forma  liahility 
indistinguishahle  in  its  essence  its  a  debt,  from  such 
other  liabilities  as  deposits  payable  on  demand.  In 
one  sense  it  is  a  matter  of  indifference  to  Canadian 
bankers  whether  their  liabilities  to  the  pul)lic  are 
incurred  by  issuing  notes  or  giving  book  credits  to 
their  depositors.  As  Alexander  Hamilton  clearly 
proved,  at  almost  the  very  inception  of  American 
banking,  it  is  the  interest  on  the  securities  purchased 
b}'  his  credit,  that  concerns  the  banker,  not  the  par- 
ticular form  in  which  that  credit  is  used.' 

From  the  general  economic  and  legal  standpoint, 
these  bank  notes  must  be  viewed  as  a  part,  and 
and    only    a   small    part,    of    that   vast    volume   of 

'Report  on  a  National  Bank,  loth  December,  ITito.  Clark  and 
Hall,  "  Legislative  and  Documentary  History  of  tlie  Bank  of  the 
Vnited  iStates,"  Wa.'shington,  18oL',  p.  Iti,  Cf.  Dunbar,  "Chapters  on 
the  Theory  and  History  of  Banking,"  New  York,  1891,  p,  ")(). 


The  Canadian  Si'steni  of  Xole  Issue 


,    t 


387 


bills  of  exchange,  checks  uiul  other  instnnuents 
of  credit  or  evi'leiices  of  ri«;hts  to  demand  money, 
which  are  more  and  more  used  in  convenient  and 
economical  substitution  for  the  coined  precious 
metals  as  media  of  exchanj^e.  Bank  notes  are  only 
one  type  of  the  devices  by  means  of  whicli  modern 
commerce  is  becoming  more  directly  the  barter  of 
goods  for  goods,  and  througli  which  tlie  use  of  money 
itself  as  a  means  of  transferring  value,  is  being  con- 
stantly economized.  When  subject  to  no  other  regu- 
lation than  that  of  the  commercial  law  enforcing  the 
obligation  of  which  they  form  the  evidence,  the 
extent  to  whicli  these  various  instruments  of  credit 
are  issued  or  retired  is  dependent  on  the  need  for 
their  issue;  in  other  words,  the  circulating  medium 
which  they  compose  is  naturally  elastic.  The  person 
who  accepts  them  in  satisfaction  of  a  debt,  does  so 
at  his  own  option,  and.  though  protected  in  many 
cases  bj"  the  continued  liability  of  the  transferor,  at 
his  own  risk.  When  bank  notes  are  regarded  merely 
as  a  liability  no  different  in  substance  from  deposits, 
it  is  quite  true  that  depositors  seem  to  have  a  "claim 
for  equal  consideration  "'  with  the  note  holders.  At 
all  events,  there  is  no  reason  why  that  part  of  the 
circulating  medium  composed  of  notes  should  be  less 
elastic  than  that  based  on  deposits  and  given  form 
as  checks. 

A  high  American  authority  has  said  that  legisla- 
tors have  generally  failed  to  perceive  the  similarity 
of  the  two  kinds  of  liability;   that   the  appropriate 


M 


1 


i.! 


1  ;■ 


'  $w 

'  t 

Virii 


1  itt 


'^loney  is  here  naed  as  denoting  only  precious  metals,  coined  by 
the  state,  and  the  fiduciary  or  (iat  issues,  whether  of  the  state  or  its 
creatures,  wliich  are  established  as  the  legal  tender  in  payment  of 
liquidated  debts. 


A 


388  The  Canadian  Banking  System,  1817-1890 

measures  for  the  protection  of  note  holders  are  more 
obvious  and  of  easier  application;  and  that  deposi- 
tors, as  a  rule,  are  better  informed,  can  more  easily 
protect  themselves,   and  so  have  less  claim  on  the 
guardianship  of  the  legislature.'     I  apprehend,  how- 
ever, that  the  real   reason  lies  deeper.     Of   all  the 
substitutes  for  money  bank  notes  are  the  nearest  'ike 
money.     They  are  transferred   by  delivery  merciy, 
they  pass  from  hand  to  hand  without  indorsement; 
they  are  issued   in  convenient  and  even  denomina- 
tions, and  they  are  legal  tender  if  not  objected  to  as 
not  money.     Where  the  greater  part  of  the  circula- 
ting medium   used  in  the  small   exchanges  is  com- 
posed of  bank  notes,  many  creditors  have  practically 
no  option  whether  or  not  to  accept  in  payment  these 
conventional  substitutes  for  money.    A  retail  trader, 
e.  g.,  is  forced  to  receive  tlie  notes  by  custom,  and 
the  probability  of  having  to  wait  for  satisfaction  if 
he  does  not  take  it  when  and  how  it  may  be  offered. 
It  may  be  objected  that  the  smallest  shop-keeper  or 
humblest  laborer  has  the  right  to  refuse  paper  vv  hich 
will  not  be  redeenied  at  its  face  value.     With  regard 
to  the  notes  of  a  particular  bank,  the  objection  holds. 
But  on  the  one  occasion  when  a  general  suspension 
of  specie  payments  was  permitted  Canadian  banks, 
inconvertible  notes  were  taken  b}^  traders  at  the  same 
value  as  paper  paid  in  specie.     In  the  great  majority 
of  cases  the  bearer  of   a  bank   note   holds  a  debt, 
which,  though  not  of  his  own  seeking,  it  was  con- 
ventionally  necessary   to  accept.       Apart   from  the 
precepts  of  economic  policy,  justice  to  the  note  holder 
as  a  quasi-involuntary   creditor,   must  always  be  a 

'Dunbar,  utsuprti,  p.  "iS. 


'    f 


77ie  Canadian  Systeyn  of  Note  Issue 


389 


valid   and   effective    reason   for   special    legislative 
action  to  make  his  claim  secure. 

The  quality  of  securit}"  is  necessarily  associated 
with  that  of  convertibility.  If  it  were  impossible  to 
change  the  note  for  the  money  promised  on  its  face, 
the  creditor's  claim  would  not  be  secured.  But  secu- 
rity and  convertibility,  as  the  people  of  the  United 
States  ought  to  have  learned  in  the  last  fourteen 
years,  are  not  the  only  desiderata  in  a  circulating 
medium  so  like  money  and  used  in  substitution  for 
it.  It  is  an  accepted  doctrine  of  monetary  theory 
that  the  amount  of  metallic  money  in  a  country  is  so 
regulated  by  the  action  of  the  international  ex- 
changes, that  it  tends  constantly  to  the  point  where 
its  effect  upon  prices  will  not  disturb  the  balance  of 
trade,  or  as  it  has  been  called,  the  equilibrium  of 
international  payments.'  If  a  metallic  currency  is  to 
be  partly  replaced  by  a  quantity  of  bank  notes,  the 
substitute,  to  be  perfect,  ought  to  be  as  elastic,  at 
least,  as  that  part  of  the  circulating  medium  instead 
of  which  it  is  used.  If,  further,  the  volume  of  the 
bank  note  circulation  is  so  elastic  that  it  easily  and 
automatically  corresponds  not  only  to  what  the  trade 
of  the  country  ought  to  have  in  the  long  run,  but 
also  to  the  frequent  rhythmic  rise  and  fall,  which  is 
especially  marked  in  the  commercial  activity  of  com- 
munities largely  agricultural,  the  advantage  of  the 
substitution  is  greatly  enhanced.  By  means  of  bank 
notes,  there  is  attained  a  more  exact  adjustment  of 
the  currency  to  the  nee<l  for  currency  than  was  pos- 
sible when  the  medium  used  in  the  exchanges  effected 
by  bank  notes  was  wholly  metallic. 

M.  E.  Ciiirnes.  "Some  Leading  Principles  of  Political  Economy 
newly  Exponndetl,"  part  iii,  chapter  iii,  sec.  ">. 


I''- 
Iii  I 


ill 


i 


I'M 


si! 


kill 


I 


-Pi 


IL 


390  The  Canadian  Bankiwi  Sj/sfcm,  1817-1890 


The  need  that  the  bank  note  currency  should  be 
secure,  convertible,  and  elastic  in  this  second  sense, 
is  so  nearly  a  generally  accepted  doctrine  as  to  pre- 
clude the  demonstration  here.  Besides,  the  proof  can 
be  found  in  almost  any  received  work  on  banking 
theory.  But  the  methods  by  which  these  desiderata 
are  obtained  in  Canada  present  some  unique  devices 
and  deserve  examination. 

First,  then,  as  to  ultimate  security.  Subject  to  the 
exceptions  already  noted,  and  the  provisions  that  no 
bank  may  issue  notes  promising  the  payment  of  sums 
of  money  less  than  five  dollars,  or  not  multiples  of 
five  dollars,  the  Canadian  bank  note  issue  is  free  and 
plural.  Though  altogether  arbitrary,  the  maximum 
limit  is,  in  effect,  a  restriction  upon  individual  banks 
rather  than  on  the  currency  as  a  whole.  The  ti^ital 
authorized  circulation  on  the  JJOth  June.  16U4.  was 
§61,559,47:^,  the  amount  outstanding  830,241,719.' 
The  bank  note  circulation  has  never  exceeded  ^40,- 
000,000.  Not  more,  probably,  than  four  of  the  banks 
with  a  moderate  paid-up  capital  and  a  relatively  large 
and  active  business,  find  their  authorized  circulation 
inadequate  in  the  most  active  season  of  the  year. 

The  security  for  the  ultimate  payment  cf  this  lia- 
bility is  the  prior  lien  given  to  the  holders  of  its 
notes,  upon  all  the  assets  of  any  insolvent  bank. 
The  notes  were  first  made  a  preferred  claim  in  1880. 
Since  then  there  have  been  four  bank  failures,  and 
in  every  case  all  the  notes  presented  have  been  paid 
in  full.     It  will  hardly  be  possible  in  the  future  for 


'The  figures  are  obtained  by  deducting  from  tlie  grand  total 
given  in  the  statements  of  banl<s  acting  under  charter,  the  author- 
ized and  outstanding  circulation  of  the  defunct  Commercial  Bank 
of  Manitoba. 


Tlie  Canmlicm  System  of  Xolc  Ixsue 


391 


any  bank  to  play  the  losing  game  so  long  that,  when 
it  is  forced  to  withdraw,  its  property  Avill  not  be 
enough  to  discharge  its  liabilities  on  notes.  On  the 
1st  January,  1894,  the  Canadian  banks  held  assets, 
presumably  good,  averaging  ^8.8()9  for  every  dollar 
of  their  notes  in  circulation.  'Oi  individual  banks, 
there  was  only  one  whose  assets  bore  as  low  a  pro- 
portion as  s'J.ilK)  to  $1  of  notes;  only  two  others  who 
held  less  than  si^O  against  every  note  issued.'  One  bank 
shows  as  high  a  proportion  as  810.91  of  assets  per 
dollar  of  notes,  another  $11.03,  and  another  still 
812.40.  But  this  is  not  the  only  guarantee.  The 
notes  are  a  first  charge,  not  only  upon  the  8302.991.- 
644  of  assets,  but  also  upon  the  double  liability  and 
unpaid  stock  subscriptions  of  shareholders  to  the 
amount  of  803,313.315  more.  The  average  guarantee 
behind  each  dollar  of  the  circulation  is.  therefore, 
nothing  less  than  the  extraordinary  sum  of  slO.Go. 
For  the  Bank  of  Montreal,  the  proportion  rises  to 
813.29,  for  the  Dominion  Bank  to  814.40,  and  U.c  the 
Quebec  Bank  to  81''). 42.  The  average,  however,  is 
one  of  the  few  that  are  really  representative  By 
the  Bank  Circulation  Redemption  Fund,  the  note 
issue  of  any  bank  is  become  a  debt  ^niicb  all  the 
banks  may  be  called  on  to  redeem,  an  amount  equal 
to  five  per  cent,  of  the  circulation  being  immediately 
available  after  a  failure,  and  one  per  cent,  in  each 
subsequent  year. 

Suspension  of  the  payment  of  any  of  its  liabilities, 
as  they  accrue,  if  continued  for  ninety  days,  consec- 
utively or  during  the  year,  constitutes  a  bank  insol- 
vent, and  forfeits  its  charter,  except  for  the  purpose 

'These  banks  have  issued  about  ^140,000,  $l,Or)0,()(i(>  ami  $1l'h,(i(1(I, 
respectively. 


!     ■ 


;Ri 


392  The  Canadian,  liankinrj  .S)/sf('iii,  1817-1890 

of  collecting  its  debts  and  winding  np  the  estate. 
Practically  though,  a  bank  fails  on  the  day  it  stops 
payment.  Its  notes  bear  interest  at  six  per  cent.  i)er 
annum  fi-om  the  day  of  suspension  to  the  day  of  pay- 
ment. In  all  probability,  those  in  charge  of  a  sus- 
pended bank's  estate  will  be  able  to  begin  redemption 
within  sixty  days  of  the  failure.  The  interest  which 
the  notes  bear  until  redemption  has  begun  rather 
tends  to  hasten  the  efforts  of  liquidators.  But  if  they 
do  not  make  arrangements  for  paying  these  claims, 
and  do  not  publicly  announce  within  the  sixty  days 
that  such  arrangements  have  been  made,  the  Minister 
of  Finance  may  make  arrangements  for  the  payment 
of  the  notes,  with  interest,  out  of  the  Bank  Circula- 
tion Redemption  Fund.  Interest  in  this  case  also 
ceases  after  the  day  set  for  redemption. 

This  fund,  as  we  have  seen,  has  been  deposited 
with  the  government  for  the  very  purpose  of  ensuring 
prompt  redemption  of  the  notes  of  an  insolvent  bank. 
It  has  been  contributed  by  all  the  banks  in  sums  equal 
to  five  per  cent,  of  the  average  circulation  of  each 
during  the  twelve  months  preceding  the  15th  July, 
181)2.  It  is  annually  adjusted,  and  bears  interest  at 
8  per  cent.  If  it  be  deplete^!  by  operations  of  re- 
demption, each  of  the  solvent  banks  must  contrib- 
ute to  iixake  it  good,  by  annual  payments  not  exceed- 
ing one  per  cent,  of  its  average  circulation.  With 
respect  to  notes  paid  out  of  the  fund,  the  Minister  of 
Finance  has  the  same  prior  lien  upon  the  assets  of 
the  issuing  bank  as  any  other  note  holder,  and  if 
such  notes  or  any  nund)er  of  them  are  redeemed,  he 
is  under  obligation  to  return  the  proceeds,  jiro  rata 
to  the  amount  of  their  contributions,  to  the  banks 
who  helped  restore  the  fund  to   its   permanent  level. 


m 


The  Ctinadian  Sijstem  of  Note  J.s.s}ie 


393 


i.  ('..  five  per  cent,  of  the  total  bank  note  circulation. 
The  liability  of  the  government  is  limited  to  the 
amount  of  the  fund.  Neither  in  the  matter  of  ulti- 
mate security,  nor  of  redemption  in  case  of  insol- 
vency, does  the  Canadian  state  become  responsible 
for  the  notes.  The  holder  must  look  to  the  pledge 
of  the  banks  first,  last,  and  for  all  time,  as  the  only 
guarantee  of  the  credit  currency.  Experience  proves 
that  the  first  lien  is  ample  ultimate  security  for  the 
notes.  By  agreeing  to  maintain  the  Redemption 
Fund,  the  banks  have  bound  themselves  so  long  as 
they  are  solvent,  to  see  to  the  payment  of  the  notes 
of  any  bank  of  the  system  that  may  susi>end.' 

So  far  as  the  circulation  is  concerned,  the  Bank 
Act  of  1890  does  for  the    banks    what   the    British 

'Suppose,  however,  that  one  very  had  fajlure  should  exhaust  the 
fund,  and  that  another  I)ank,  quite  ahle  to  pay  its  dehts  au'I  even 
return  a  diviiiend  to  proprietors,  should  fail  or  decide  to  wind  up 
its  husiness  before  the  assessment  to  make  the  fund  jiood  had  been 
levied  by  the  Treasury  Board  would  the  second  bank  be  liable  to 
contribute?  The  case  is  nowhere  treate<l  in  the  Bank  Act;  the  con- 
tribution would  not  be  one  of  the  penalties  which  are  a  last  charge 
on  the  assets  of  an  insolvent  bank,  and  section  54  provides  only  for 
repayment  from  the  fund  to  the  bunk  in  liquidation,  not  from  a 
bank  in  li(juidation<o  the  fund.  It  is  conceded  tliat  this  liypothesis 
is  a  bit  extreme.  Suppose,  again,  ■•  general  financial  and  commer- 
cial crash,  in  which  several  banks  should  <:o  down;  what  then  would 
become  of  the  fund?  Throe  of  the  banks  have  each  a  circulation 
equal  to  twice  or  thrice  the  amount  of  the  fund,  while  the  notes 
of  any  two  of  twelve  others,  if  fallin<;  upon  the  fund  for  payment, 
would  wholly  deplete  it.  What  would  luippen  in  case  of  the  third 
failure?  If,  of  course,  such  a  catastrophe  were  probable,  the  criti- 
cism would  be  good.  Laws  must  be  passed  with  a  view  to  what  is 
likely  to  happen,  and  not  to  meet  everything  imaginable.  ''"  .j  very 
banks  whose  failures  are  8ii{)pose(l  to  deplete  the  fund  are  among 
those  notoriously  well  managed,  stal)le  and  strong.  In  the  worst 
failure  that  ever  happened  in  Canada  the  assets  of  the  bank,  if 
notes  had  been  a  preferred  claim,  would  have  been  enough  and 
more  to  pay  them  in  full. 


"r: 


,1 
'.I 

i 


■ '  \' 


\*-  :-l\. 


'■'  >  i 

■  ** 

ii^ 

i  ■ 

p! 

>i  i  ■ 

!  It 

'  '  W  '  ■ 

iiii 

^H 

« ■II 

u 

394  The  (Janmlian  Jianlcing  System,  1817-1800 


H 


Xorth  America  Act  of  1807  accomplished  for  the 
(Canadian  provinces.  In  either  case  confederation  is 
now  an  accomplished  fact.  But  the  highest  benefits 
of  the  bank  federation  are  indirect.  The  Bank  Cir- 
culation Redemption  Fund  is  the  latest,  the  strongest, 
the  outermost  safeguard  set  up  about  the  circulating 
medium  of  Canada.  The  service  of  the  fund  as  a 
preventive,  practically  absolute,  of  discount  on  the 
notes  of  a  suspended  bank,  provides  the  best  of 
reasons  for  undisturbed  confidence  in  bank  paper. 
Formerly  it  was  necessary  to  keep  telling  the  Cana- 
dian public  that  the  currency  was  good.  Xow  they 
are  convinced.  The  fund  protects  the  note-holder 
from  loss,  however  ignorant  he  may  be,  or  however 
humble  or  helpless  his  condition.  It  protects  the 
banks  against  needless  runs  from  this  class  of  credi- 
tors, and  materially  strengthens  their  credit.  It  is 
to  be  admitted  that  the  new  security  for  the  circula- 
tion somewhat  strengthens  that  tendency  of  deposi- 
tors to  convert  their  claims  against  a  suspected  bank 
into  a  prior  lien  upon  its  assets,  which  is  illustrated 
by  the  increase  of  circulation  and  the  decrease  in 
demand  deposits  shown  below  in  statements  of  the 
Commercial  Bank's  condition,^     But  the  impulse  to 


'Tlie  chief  use  of  tlie  fund  appeared  after  the  faihire  of  the  Com- 
mercial Bank  of  Manitoba  on  ^londay,  the  Ikl  July,  180:5.  Induced 
by  the  interest  and  protected  by  the  {guarantee  fund,  the  banks  in 
Winnipeji  and  throughout  Manitoba  "accepted  the  notes  after  sus- 
pension freely,  relievingtlie  public  from  all  inconvenience  and  fear." 
The  notes  never  fell  to  a  discount,  and  on  the  Kith  September  those 
held  by  the  public  were  redeemed.  The  liquidator,  finding  he 
could  better  realize  upon  the  estate  by  waiting  a  little,  made  ar- 
rangements to  continue  paying  interest  upon  notes  held  by  the 
banks  until  he  should  have  the  funds  to  redeem  them.  Thus,  at 
the  end  of  September,  the  ("irculation,  w-hich  had  been  $41!i,i:>")  on 
the  :')d  .Tuly  was  i;il(i;5,L»2r);  a   month   later  Jsn.lKio;  and  on  the  last 


The  Canutliun  Sjistein  of  Xoh'  Jfixuc 


396 


change  deposits  into  notes  is  only  sliglitly  stronjijer 
than  wlien,  before  tlie  establishment  of  the  fund,  the 
notes  were  already  the  first  charge  against  a  failed 
bank's  assets.  The  plan  of  meeting  a  heavy  run  l)y 
paying  out  notes  is  praeticable  only  so  long  as  tiie 
circulation  is  witliin  the  authorized  limit  and  docs 
not  come  back  for  redemption.  All  the  bank>^.  ex- 
cept the  five  or  six  with  largest  capitals,  have  a  very 
small  margin  between  outstanding  and  autliori/rd 
circulation:  at  best,  therefore,  a  weak  bank  in  serious 
difficulty  could  not  pursue  the  policy  for  more  tluin 
forty-eight  or  seventy-two  hours.  In  the  first  pla(;e 
it  would  too  soon  exhaust  its  authority  to  issue  notes, 
and  further  emission  would  subject  its  estate  to  heavy 
fines.     Then    persons    who    had    once   acquired    the 

(lay  of  November  ?.")!, 8!)"),  from  which  point  it  lias  fallen  to  $li',440, 
in  .Tune,  18!I4. 

The  Commercial  Bank  of  Manitoba  was  the  third  of  the  l)anks 
started  in  the  eighties  to  close  its  doors.  In  1SS4  it  had  succeeded, 
as  an  incorporated  bank,  to  the  business  of  Macarthur,  ]!oyle  A 
Campbell,  private  bankers  and  financial  agents  at  Winnipeg. 
Always  extremely  subject  to  local  influences,  usually,  from  all  ap- 
pearances, run  with  as  much  of  a  view  to  the  development  of  the 
country  as  to  the  conduct  of  a  safe  and  sound  banking  business, 
and  resorting  to  such  methods  to  obtain  business  as  prudent  bank- 
ers disapproved,  the  Commercial  met  ii  fate  by  others,  at  least,  not 
unexpected.  It  had  been  indebted  to  its  Montreal  correspondent, 
on  secured  loans,  since  ;>lst  January,  ISHi*.  Beginning  at  the  mod- 
est figure  of  $20,000,  the  debt  rose  by  the  next  .January  to  $lL'."),000, 
and  by  March  to5'l()(),2!i0.  During  this  jieriod  settlements  with  the 
Commercial  were  difficult,  and  some  banks  in  Winnipeg  had  regu- 
larly required  the  payment  of  balances  in  legal  tenders,  or,  if 
accepting  the  bank's  draft  on  Montreal,  fore-assured  themselves  of 
its  acceptance.  The  winter  of  1S92-3  was  a  hard  one  for  the  con- 
cern, and  the  spring  quite  as  severe.  In  May  a  drain  of  its  depos- 
its payable  on  demand  was  begun.  It  continued  in  June,  with  force 
much  increased  towards  the  end  of  the  month.  The  greater  j)artof 
the  run  was  met  by  paying  out  notes.  Thus,  on  the  Ist  July  $;!8,7r)2 
of  deposits  were  called  for,  and  |22,245  of  notes  paid  out.     Between 


m 


;!i 


fu 


:iM 


m 


iif 


i,' 


|.:;, 


390  The  Canadian  Jiankimj  Si/titem,  1817-1890 


deposit  in  jj;  liubit  would  not  keep  notes  thuH  received 
in  theii*  pockets  or  tlicir  safes.  They  would  pay 
them  in  to  other  hanks,  and  the  di.'mands  for  redemp- 
tion jiressed  hy  these  creditors  would  precipitate  the 
fciilure    of    the    suspected    hank.       The   Commercial 

tliel'.lst  May  and  the  !!(!  July  demand  dejmsitswere  rt'diU'ed$]S!),81o, 
circulation  incri-ascd  hy  JiNd.ilU").  Tlie  jjrincipal  provision  for  the 
other  $4!t,0{tii  drawn  out  is  heet  explained  hy  the  increase  of  $42,000 
in  Si-cured  loans  from  otlier  hanks.  The  i>roci'8s  of  paying  out 
notes  to  anxious  depositors  had  to  stop,  of  course,  as  soon  as  the 
paper  fell  into  the  hands  of  other  hanks.  The  Commercial  having 
only  $4,i:)0  (if  money  left  in  its  vaults,  could  not  redeem  its  paper 
and  was  forced  to  suspend.  The  following  tahle  shows  the  state  of 
the  hank  at  different  times  preceding  the  failure,  and  the  effect  of 
a  year's  liquidation: 

("oxj)ENsi;n  St.atk.mknt  of  tlie  .Assets  and   Liahilities  of  the  Com- 
mercial iJank  of  Manitoha. 


LlABIt.lTIBB 

ICL'lltS  <)Illitt(!cl) 


I 


•  i 

;Jtl  May,  IWiH     :!().Iime         :)  July      ;10  June,  1891 


I  !? 

Notes  in  circulation i:7S,.");')0 

Due  Provincial  (lov't 85,]  17 

Deposits   payahle    on    de  ' 

mand .  ((S."),r)!(.") 

Deposits  payahle  after  no- 
tice   US,:!.")? 

Loans  from    other   hanks 

in  Canada,  secured '  l(i(),000  , 

Other  liahilities l,7(l'J 

Total I,3(i0,47ii 

.\SSKTS 

Specie  and  Dominion  notes  2:!,27;> 

De[)osit  for  note  circulation'  l!),7")n 

Deposit  in  other  hanks....!  :.'7,'.Mr) 

Notes,    cheques   and    hal-|  j 

ances  due  of  other  hanks  4S,44l)  i 

(^urrent  loans  l,714,l!il.' i 

Overdue  del)ts (18,(Mi.->  ! 

Real  estate ;;i,828 

M"rtgages  on   real   estate  ! 

held.    12,:!!)8  j 

Bank  i»reniises l(i,].")(l 

Other  assets 10,741 


:)iH),8!»0 

(;9,(i4(i 

."):i4,(i:'.4 

1<)7,17<) 

l7i.',o8;^ 
;520 


$ 

419,18--)  ' 
84,204  . 

40.-),  882  j 

i;'.7,17()  i 


12,440 

0.57.393 
22,920 


2()2,.-)8:'.  ' . 
o.lOT  i 


1,:!4!,2.-)1     1,;!44,2(;9] 


4,i:',o 
lit,  7.-);) 

72,007  , 

20,480  ' 
l,(i49.0.->0 
1114,702 
41,158 

12,122, 

lo.i.^o: 

l(t,.-)09  ! 


4,130 
10,700 
85,70.') 

2('),:;o8 

l,():5(),2(iO 

104,702 

41,1.58 

12  122 

io'i.5d 

13,780 


3,042 
o9o,79« 


14,7oO 
81,04.5 

4,484 

530.700 

405,. 53() 

32,501 

14,221 
11,832 
10, 003 


Total I  1,907,708;  1,051,151  i  1,9.54,107;  1,171,225 


The  Canadian  System  of  Sote  Insiie 


:m 


Bank  of  Manitoba  withstood   tlic  cxtrcnjc   in'cssuro 
but  on(!  (lay. 

The  niotallic  nmtorials  of  rcch'niption — the  money 
in  which  bank  notes  are  payable — are  American  ^ohl 
coins  of  the  present  weif^ht  and  fineness,  the  ea;4le 
being  legal  tender  for  '^li)  in  Canadian  currenev .  and 
the  British  sovereign  and  a  lialf  thereof,  thi'  nnit 
being  legal  tender  for  .^4.(S():;  in  Canadian  currency. 
Silver  coins  of  o,  10,  91)  and  oO  cents  in  Canadian 
currency,  strn('k  by  the  British  mint,  are  legal  tender 
up  to  !i^l():  coi)pei'  or  bronze  cents  to  '2')  cents,  'i'he 
Dominion  also  issues  a  legal  tender  jtajier  currency, 
redeemable  in  gold,  in  denominations  of  1.  "2.  4.  .").  10 
and  20  dollars  and  upwards.  These,  witii  bank  notes, 
constitute  practically  the  whole  currency  of  the 
country,  except  that  which  is  used  in  making  fi-ac- 
tional  change.  The  larger  part  of  the  Dominion  note 
circulation  among  the  people  consists  of  one  tw(j  and 
four  dollar  notes,  payable  on  denumd  by  the  Assist- 
ants Receiver  General  at  the  commercial  center  of 
any  province;  the  balance  of  the  circulation,  fi-om 
50  to  70  per  cent.,  is  held  by  the  banks,  I'pon  tlie 
request  of  the  payee,  a  bank  is  reciuired  in  making  a 
payment,  to  pay  not  to  exceed  si 00  of  the  amount 
thereof  in  Dominion  notes  of  the  smaller  denomina- 
tions. The  chief  variations  in  the  amount  of  Domin- 
ion notes  outstanding  are  due  to  the  rise  and  fall  of 
the  large  note  circulation,  and  are  dependent  upon 
variations  in  the  reserves  held  by  the  banks.  The 
legal  reserve  against  the  government  issues  not  in 
excess  of  $20,000,000  is  composed  of  {<()  specie  and 
Dominion  debentures  guaranteed  by  the  government 
of  the  United  Kingdom  to  an  amoinit  equal  to  2o  pei' 
cent,  of  the  total  circulation,  of  which  IT)  per  cent. 


it 


I 


Si 


398 


The  (Junuditia  ISiinkimj  Si/.s/rm,  1817-1890 


at  It'iist  sliall  1k(  in  Hix-cic;  (h)  Dominion  debentures, 
JHsued  by  authority  of  Parliament,  to  cover.  iHKUes  in 
excess  of  A'JO. ()(»(», ()()()  are  covered  by  e(iual  amounts 
of  specie.  In  practicre.  considerably  more  specie  and 
guaranteed  debentures  are  In-ld  than  tbe  law  re(iuires; 
the  practice  now  confoi-ms  to  tlie  original  policy  of 
Sir  Francis  Hincks.  /.  c,  to  establisl),  after  experience, 
a  minimum  to  be  covered  by  securities,  and  to  hold  for 
all  issues  in  excess  of  the  minimum  eciual  aniounts 
of  specie.  If  the  unguarante(.'d  debentures  were 
sold  to  provide  specie  for  redemption  i)Urposes,  they 
Would  become  liabilities  (^uiti!  as  much  as  the  notes 
themselves.  The  one  diiterence  now  is  that  tlie 
notes  have  l)een  issued  to  tlie  public;  tlie  debentures 
may  be  issued.  The  supposition  that  the  one 
"secures"  the  other  form  of  liability  is  i)ali)ably 
absurd.  The  i-equirement  that  such  debentures  shall 
be  held  in  amounts  equal  to  the  outstanding  circula- 
tion not  otherwise  covered,  originated,  no  doubt,  in 
the  idea  that  the  government  would  thereby  be  pre- 
vented from  incurring  debt  on  l^ominion  notes  with- 
out the  authority  of  Parliament.  The  only  real 
reserve  held  against  the  notes  consists  of  specie  and 
guaranteed  debentures.  This  need  be  but  25  per 
cent.,  but  ought  to  be  much  more.  Latterly  it  has 
been  higher,  in  June,  July  and  August,  KS94,  the 
specie  alone  reaching  nearly  oO  per  cent. 

There  is  high  authority  for  the  rule  that  the  lowest 
denomination  of  bank  notes  should  not  be  less  than 
five  dollars.  If  a  small  note  circulation  is  necessary, 
or  is  preferable  to  a  metallic  currency,  it  is  expedient, 
probably,  that  the  government  should  be  responsible 
for  it.  Yet  the  small  note  circulation  of  Canada  is 
of  comparatively  minor  consequence.    The  amount  of 


The  Vitnadian  Sijskm  of  Noh  Issue 


;{99 


Dominion  noti's  in  the  Imnds  of  the  iKoplf.  /.  c.  out- 
siilr  the  i)iinks.  has  novtsr  been  more  than  ij^S. ()()(). 000 : 
SO. 000, 000  is  ncart!!-  the  usual  tij^urc.  Tho  total  cir- 
c'ulati(»n  outstanding  is  much  lafK'T.  JUid  now  amounts 
to  more  than  ii^:io,0U0.0O0.  Wiiy':-  The  obvious  cxphi- 
nation  is: — -Hy  compelling  them  to  hold  not  less  than 
forty  i»('r  cent,  of  theii-  cash  reserves  in  Dominion 
notes,  the  government  has  forced  from  the  hanks  a 
l»ermanent  loan  without  interest  which  has  varied  in 
the  last  tiv(>  years  between  ten  and  fourteen  million 
dollars.  Yet  the  credit  of  Canada  is  jj^ood;  its  secu- 
rities, though  bearing  extremely  low  rates  of  interest, 
are  liighly  esteemed  by  Jiritisli  investors.  Its  gov- 
ernment can  borrow  all  that  it  needs  in  the  open 
market.  The  justice  of  a  forced  loan  for  K)  to  22  per 
cent,  of  the  entire  banking  capital  of  the  Dominion, 
need  not  be  examined. 

It  is  enough  that  the  reserve  provision  is  injurious. 
It  prevents  the  use  of  gold,  or  gold  certiticates,  in 
exchanges  between  the  banks  at  the  centers.  In  a 
single  day  a  bank  might  accjuire,  by  collecting  its 
just  debts,  so  great  a  sum  of  specie  that  its  total 
stock  would  rise  above  the  i)roportiou  fixed  by  law, 
and  sanctioned  bv  a  penalty  of  s,")00  for  each  violation. 
It  diminishes  the  amount  of  gold  held  in  the  country. 
It  impairs  the  ultimate  banking  reserve  of  the 
Dominion.  That  reserve  is  not  at  all  times  instantly 
available  in  its  nominal  strength,  as  it  would  be  were 
the  banks  perfectly  free.  The  cash  which  they  hold 
consists,  in  part,  of  mere  promises,  and  they  are  under 
constant  obligations  as  to  the  proportions  which  such 
promises  shall  bear  to  the  entire  amount.  If  the 
banks  had  only  Canadian  payments  to  make,  the 


i 


m 
m 

.mi 


ill 


ft 


400 


The  Canadian  BanJcing  System,  1817-1890 


objections  to  the  requirement  would  be  less  serious. 
In  Canada  Dominion  notes  are  money. 

But  the  liabilities  of  the  Canadian  banks  are  by 
no  means  merely  Canadian.  They  are  due  in  the 
United  States,  in  i\w  United  Kingdom,  Hong  Kong, 
Australia.  The  really  heavy  demands  upon  Cana- 
dian banks  have  always  been  for  settlement  of  bal- 
ances abroad.  To  meet  them  they  need  the  inter- 
national money,  and  that  is  gold  alone;  for  inter- 
national payments  Dominion  notes  are  just  about  as 
available  as  American  silver  certificates.  It  is  true 
that  there  are  redemption  offices  at  Toronto,  Mon- 
treal, Halifax  and  St.  John,  but  when  called  upon  to 
redeem  quantities  of  their  notes,  past  Governments, 
if  specie  was  wanted  for  shipment  to  New  York, 
have  repeatedly  paid  out  sovereigns;  if  it  M^as  needed 
for  export  to  P^ngland,  they  liave  redeemed  in  eagles, 
and  the  coins  desired  have  consequently  cost  a  pre- 
mium of  one-eighth  to  one-quarter  of  one  per  cent. 
And  in  order  to  -'protect  the  reserve,"  or  *•  correct 
the  situation,"  it  is  quite  possible  that  authorities, 
within  the  next  ten  years,  may  again  exercise  tliis 
option  to  the  cost  and  hurt  of  the  honest  commerce 
of  the  country. 

The  immediate  redemption,  the  convertibility  of 
Canadian  bank  notes,  is  ensured  by  their  character 
as  debts  due  on  demand,  for  the  payment  of  which 
the  entire  estate  of  the  issuer  is  liable.  The  note 
must  be  paid  when  presented  at  the  place  of  payment. 
else  the  bank  whose  promise  it  bears  confesses  insol- 
vency and  destroys  its  credit.  A  daily  test  of  this 
convertibility  is  maile  wherever  there  are  two  or 
more  offices  of  different  banks.  Bank  notes  are 
legally  payable  only  at  tlie  offices  where  they  are 


mn, 


The  Canadian  System  of  Note  Issue 


401 


made  payable,  and  at  the  rederriptioii  office  which  the 
Bank  Act  obliges  each  bank  to  establish  at  the  trade 
center  of  each  province.  That  office  may  be  a  branch 
of  the  issuing  bank,  or  an  office  of  another  bank 
which  undertakes  the  service.  The  notes,  however, 
must  be  received  in  payment  at  any  office  of  the  bank 
which  issues  them,  and  banks,  in  practice,  do  receive 
the  notes  of  other  banks.  The  balances  due  after 
the  daily  exchange  of  notes  and  other  liabilities  made 
between  bank  offices  outside  of  the  three  principal 
cities,  are  settled  by  drafts  on  Montreal,  Toronto  and 
Halifax.  In  these  three  cities  there  are  clearing 
houses,  and  the  balances  remaining  after  the  dail}' 
offset  of  claims  due  by  the  banks  against  claims  due 
to  them,  are  settled  in  legal  tenders  of  the  highest 
possible  denomination.  In  consequence,  the  country 
through,  there  are  frequent  and  thorough  tests  of  the 
possibility  to  convert  bank  notes  into  the  money 
promised  by  them.  The  public  take  little  active  part 
in  this;  the  banks  do  the  work  by  presenting  for  pay- 
ment whatever  notes  they  receive  in  the  course  of 
their  day's  business.  Of  these,  the  notes  of  local 
competitors  will  stand  for  the  largest  sums;  notes  of 
banks  without  a  branch  in  the  locality  are  forwarded 
to  the  nearest  redemption  office  and  presented  there. 
The  possibility  and  enforcement  of  the  immediate 
redemption  of  bank  notes  have  an  important  bearing 
upon  the  elasticity  of  this  form  of  circulating  me- 
dium. I  have  already  taken  for  granted  the  desira- 
bility of  elasticity,  and  I  waive  now  the  discussion 
whether  as  high  a  degree  of  elasticity  can  be  secured 
through  the  emission  of  fiduciary  paper  by  other 
agencies  as  when  it  is  issued  by  banks.  Canadian 
governments  and  bankers  have  thought  not;  Ameri- 
2G 


M.i|[l 


<r;^ ; 


m 


'Hi 


it 


■f 

I' 


403 


The  Canadian  Bimhimj  tSijstem,  1817-1890 


can  bankers,  at  their  last  convention,  have  come  to 
the  same  conclusion;  and  the  views  of  all  accord 
with  the  conclusions  of  what  may  safely  be  called 
the  received  theory  of  credit^  But  I  shall  endeavor 
to  show  that  the  Canadian  banks  do  provide  a  medium 
of  exchange,  the  volume  of  which  exactly  corre- 
sponds to  the  need  for  it — the  need  depending  upon 
the  number  and  amount  of  the  transactions  in  which 
it  is  used — and  that  with  profit  and  honor,  the  banks 
cannot  do  otherwise  under  the  present  system. 

First  let  us  look  at  the  logic  of  the  case.  The  funds 
at  the  command  of  a  bank,  its  lending  power,  or  its 
purchao  ng  power  as  a  buyer  of  negotiable  securities, 
are  based  on  the  capital  furnished  by  proprietors,  the 
money  deposited  with  it  by  customers,  and  such 
rights  to  demand  money  as  will  be  accepted  from 
the  banks  in  lieu  of  money  itself.  Whatever  expands 
the  credit  of  the  bank,  /.  e.,  the  extent  to  which 
rights  to  demand  money  from  it  will  be  accepted, 
permits  the  increase  of  its  profit.  Whether  this  be 
done  by  giving  the  person  to  whom  money  is  due  a 
credit  in  its  books,  or  by  laying  him  in  notes,  is,  in 
some  respects,  a  matter  of  indifference.  Every  book 
credit  accepted  in  lieu  of  money  payment,  every  note 
in  circulation,  by  iiugmenting  the  purchasing  power 
of  a  bank,  becomes  tantamount  to  a  loan,  in  the  latter 
case  always  witliout  interest,  had  by  the  bank  from 
the  public.  This  need  nowise  imply  that  the  issuers 
of  notes  do  not  share  their  gain  with  the  people,  and 
it  does  not  imply  that  banks  alone  reap  the  advantage 
of  economizing  the  $30,000,000  or  more  of  real  cap- 
ital which,  without  some  other  substitute,  would  be 
needed  to  effect  the  Canadian  exchanges  in  which 
bank  notes  are  now  used.     But  it  does  make  it  plain 


■i!M 


The  Canadian  System  of  Note  Issue 


403 


that  each  bank  lias  a  direct  and  powerful  motive  for 
expanding  its  note  circulation  by  whatever  lawful 
and  reputable  methods  it  may. 

A  little  examination  ought  to  make  it  equally  clear 
that  the  possibility  of  this  expansion  is  dependent 
upon  the  needs  of  bank  customers.  Canadian  banks 
are  prohibited  by  law  from  pledging,  assigning  or 
hypothecating  their  notes,  and  advances  or  loans  made 
on  the  security  of  its  notes  are  not  recoverable  from 
a  bank.  The  only  way  for  a  bank  to  get  its  notes  in 
circulation  is  to  pay  them  over  its  counter  in  the 
ordinary  course  of  business.  It  may  exchange  them 
for  gold,  pay  with  them  the  demands  of  depositors, 
or  other  creditors,  or  make  advances  in  that  form  of 
its  credit.  Where  the  practice  of  keeping  deposits 
with  banks  is  common,  and  especially  where  interest 
is  paid  on  deposits,  the  bank's  customers  are  prevented 
by  motives  of  prudence  or  profit  from  drawing  out 
more  notes  than  are  required  for  their  immediate 
purposes.  No  man  will  procure  twice  the  amount  of 
notes  he  needs  to  meet  his  payments,  and  run  the 
risk  of  losing  the  unused  half,  when,  by  calculating 
his  wants,  he  would  avoid  the  risk  and  either  save 
interest  on  the  unnecessary  part  of  a  loan,  or,  in  some 
cases,  receive  interest  on  the  balance  he  leaves  with 
his  bank.  Where,  further,  the  banking  habit  is 
strong  and  banking  facilities  are  as  well  distributed 
as  they  are  in  Canada,  the  customers  of  banks  and 
those  in  exchange  relations  with  them,  comprise 
practically  the  entire  commercial,  agricultural  and 
industrial  community.  The  means,  for  instance, 
which  three  or  four  hundred  laborers  need  for  their 
weekly  or  monthly  purchase  of  groceries,  and  other 
goods,  are  provided  at  one  stroke  in  supplying  a  man- 


l!u)^' 


404  The  Canmlian  Banhiny  System,  1817-1890 


ufacturer  or  contractor  with  notes  for  his  pay  roll. 
The  bills  which  the  farmers  of  a  certain  district  use 
to  buy  their  winter  supplies,  or  in  which  they  realize 
upon  their  grain,  are  issued  through  a  few  advances 
to  the  produce  shippers  operating  in  that  district. 
Since  the  process  is  quite  the  same  in  an  indefinite 
number  of  other  cases,  the  whole  country  secures 
whatever  expansion  of  the  circulation  may  be  required. 
The  banks  clearly  have  every  motive  to  meet  the 
need  for  increased  note  issues:  it  is  quite  as  clear 
they  cannot  issue  in  excess  of  that  need. 

In  no  country,  however,  are  the  number  and 
amount  of  the  exchanges  effected  by  bank  notes  in 
constant  augmentation.  The  upward  movement,  if 
there  be  one,  is  not  steady.  The  need  for  circulating 
medium  at  a  given  time  may  be  greater  than  it  was 
shortly  before,  exactly  the  same,  or  less.  Particu- 
larly in  North  America,  where  the  supply  of  import- 
ant marketable  commodities  varies  with  the  seasons 
of  the  year,  are  there  marked  differences  between 
the  commercial  activity'  in  different  months,  and 
extreme  variations  in  the  need  for  the  means  of  pay- 
ment. Contraction  is  an  element  as  important  to 
elasticity  as  expansion.  In  Canada,  while  the  in- 
fluence of  foreign  exchanges  and  international  trade 
is  not  without  force,  the  immediate  causes  of  con- 
traction are  different,  but  quite  as  effective  and  auto- 
matic, and  even  more  prompt.  No  man  who  keeps  a 
bank  account  is  going  to  hold  bank  notes  or  any 
other  negotiable  instruments  of  credit  payable  on 
demand  after  the  need  for  their  use  in  exchange  is 
passed.  Either  he  wishes  to  avoid  the  risk  of  losing 
them,  desires  to  convert  them  into  interest-bearing 
deposits,  or  with  them  discharges  some  obligation  to 


The  Canadian  System  of  Note  Issue 


405 


the  bank  on  which  he  is  paying  interest.  In  any 
case  he  has  substantial  motives  of  gain  for  bringing 
the  notes  to  the  bank  which  has  his  account.  The 
action  of  a  note  holder,  who  has  no  bank  account, 
may  be  disregarded;  if  r  bank  note  is  issued  in 
making  payments,  it  is  destined,  with  all  necessary 
promptness,  to  reach  the  hand  of  some  one  who  has 
a  bank  account,  and  will  deposit  the  note  to  his 
credit  if  he  feels  no  need  for  its  present  use. 

The  next  and  final  agents  in  the  process  of  con- 
traction are  the  banks  themselves.  Though  it  is  not 
legally  obliged  to  do  so,  any  Canadian  bank  will 
receive  in  payment  the  notes  of  any  other  bank  of 
the  sj-stem.  In  so  doing  the  bank  is  protected  from 
loss,  and  is  able  to  serve  not  only  the  customer's 
convenience,  but  also  its  own  advantage.  The  total 
amount'  of  notes  outstanding  at  any  one  time  is 
limited,  as  we  have  just  seen,  by  the  needs  of  the 
public  for  that  form  of  circulating  medium.  If  there 
were  no  other  substitute  for  money,  the  extreme  limit 
of  the  note  circulation  during  a  given  period  would 
be  the  total  amount  of  exchanges  then  to  be  per- 
formed, divided  by  the  average  amount  of  payments 
effected  by  a  given  sum  of  bank  notes.  But  there 
are  other  s\ibstitutes  for  money  and  the  actual  limit 
is  considerably  less.  A  comparison  of  the  facts  in  dif- 
ferent countries,  e.  r/.,  England,  France  and  Scotland, 
shows  that,  while  the  amount  of  the  exchanges  varies 
with  the  condition  of  trade,  in  ichai  exchanges  a 
community  may  use  bank  notes  depends  upon  the 
traditions,  prejudices  and  habits  (as  accommodated 
to  legislation) — the  business  custom,  in  short — pre- 
vailing within  it.  Business  custom  changes,  without 
doubt,  but  the  changes  are  so  slow  and  comparatively 


illtli! 


m 

w 
k 


H! 


\  i 


The  Canailian  Ban'.'iig  Si/s/em,  1817-1890 


slight  as  to  permit  us  to  conclude  that  for  any  one 
time  the  limit  of  a  bank  note  circulation  is  not  only 
predetermined,  but  also  practically  independent  of 
the  amount  of  other  money  substitutes  in  use. 

From  the  banker's  point  of  view,  the  note  circula- 
tion is  a  form  of  credit  through  the  enjoyment  of 
whicJi  his  interest  bearing  investments  may  be  in- 
creased. His  note  issue  is  the  source  of  a  profit, 
which,  at  a  given  time,  could  not  be  obtained  in  any 
other  way.  This  being  the  case  it  is  to  the  undoubted 
advantage  of  any  one  of  the  thirty-eight  banks  now 
doing  business  in  Canada  to  supply,  so  far  as  the  law 
allows  it,  the  limited  and  predetermined  demand  for 
bank  note  currency  with  its  own  issues.  Now,  the 
bank's  only  way  to  put  notes  in  circulation  is  to  pay 
them  over  its  counter.  It  receives  each  day,  how- 
ever, the  notes  of  other  banks,  paid  in  as  deposits, 
or  in  liquidation  of  other  loans.  Such  notes  are  evi- 
dences of  non-interest  bearing  debt.  The  bank  finds 
it  essential  to  convert  the  debt  either  into  cash  or 
into  some  productive  investment.  The  notes  may  be 
collected  either  by  presenting  them  for  redemption 
or  by  paying  them  out  to  the  public.  On  the  latter 
supposition  the  public  reimburses  the  bank  by  ex- 
changing for  the  notes  either  payment  or  some  other 
right  to  demand  payment. 

But  for  the  Canadian  bank  th-re  is  a  more  import- 
ant consideration  than  mere  repayment.  The  circu- 
lating medium  of  the  country,  so  far  as  it  consists  of 
bank  notes,  constitutes  a  volume  of  credit  for  which 
each  bank  is  competing  to  get  the  largest  possible 
share,  in  order  to  obtain  in  this  form  the  largest  pos- 
sible loan  without  interest.  The  manifest  policy  of 
the  bank,  therefore,  is  not  to  collect  the  debt  from 


The  Canadian  Si/i^tcm  of  Note.  Issue 


407 


the  public,  but  to  present  the  notes  for  ro(k'nii)tion 
by  the  bank  which  issues  them.  By  this  means,  the 
bank  can  cause  a  slight  contraction  in  the  total  note 
circulation,  and  gain  the  chance  to  use  its  own  paper 
in  meeting  demands  for  expansion.  Sheer  self-interest 
impels  each  bank  to  demand  prompt  and  daily 
redemption  of  all  the  notes  of  other  banks  that  have 
come  into  its  tills.  Unlike  some  benefactions,  the 
act  of  paying  the  notes  of  another  bank  to  the  public 
has  a  real  and  measurable  value.  When  the  amount 
of  its  own  notes  outstanding  approaches  the  author- 
ized maximum,  and  further  issue  makes  the  bank 
liable  to  a  fine,  it  has  the  option  of  paying  out  all  the 
paper  that  comes  into  it,  or  to  circulate  exclusively 
the  notes  of  some  one  bank  whose  issue  is  further 
within  the  legal  limit.  If  the  latter  course  is  adopted, 
it  receives  compensation  for  the  service  in  some  form, 
the  usual  method  now  being  for  the  bank  whose  notes 
are  circulated  to  allow  the  circulating  bank  to  delay 
the  deposit  of  funds  in  exchange,  for  a  period  of  two 
weeks  after  the  paper  was  received.  As  the  average 
"life"  of  a  note — the  time  elapsing  between  the  issue 
of  a  note  and  its  redemption — is  probably  in  the 
neighborhood  of  four  weeks,  the  profit  on  the  circula- 
tion is  thus  divided,  the  bank  which  is  obliged  to 
circulate  another's  notes  seldom  receiving  more  than 
one-half.  To  pay  out  his  competitor's  notes  in  the 
ordinary  course  of  business  is  to  act  as  a  broker  with- 
out charge,  or  at  a  reduced  charge;  to  hold  them  is 
to  loan  to  his  competitor  without  interest.  Either 
service  is  a  form  of  altruism  in  which  the  Canadian 
banker  will  never  indulge  so  long  as  he  can  issue 
notes  of  his  own. 


in 


\tx 


408  ^he  Canadian  Banking  Si/s/ein,  1817-1800 

Thus  the  machinery  for  exitansion  and  contiaction 
of  the  Canadian  bank  note  currency  is  efficient,  auto- 
matic and  complete.  The  impulse  in  either  direction 
is  the  silent,  certain  force  of  self-interest.  The  banks 
gain  in  supplying  the  public's  need  for  augmented 
circulation;  the  public  gain  in  returning  unnecessary 
notes  to  the  banks;  and  whenever  such  notes  are  not 
those  of  its  own  issue,  each  bank  finds  its  profit  in 
presenting  them  for  redemption.  Every  one  of  the 
five  hundred  branch  banks  in  Canada  is  a  competi- 
tive agent  for  expansion :  every  one,  from  like 
motives  of  gain,  is  an  active  worker  for  contraction. 
In  either  direction  the  operations  of  the  banks  are 
wholly  dependent  on  the  needs  or  action  of  the  public 
with  whom  they  are  so  closely  in  touch. 

What  may  logically  be  expected  of  the  Canadian 
system  of  issue  is  confirmed  by  examination  of  the 
facts  as  to  the  notes  of  chartered  banks  in  circulation 
at  different  dates  since  the  31st  December,  1878.  In 
Appendix  III  there  is  a  table  showing  the  exact 
amount  of  the  total  bank  note  circulation  reported  to 
the  government  on  the  last  juridical  day  of  each 
month  since  the  '-Unt  January,  1878,  But  every  im- 
mediate purpose  of  the  table  is  served,  in  a  more 
graphic  and  comprehensive  way,  by  the  chart  oppo- 
site, showing  the  varying  heights  of  the  circulation 
on  the  last  day  of  each  month  of  the  last  fifteen  years, 
by  means  of  points  taken  on  the  vertical  axes,  and 
connected  by  lines  for  the  sake  of  clearness.  A  cas- 
ual glance  proves  perfectly  the  rhythmic  fluctuations 
of  the  circulation  in  harmony  with  the  movements 
of  Canadian  trade.  It  shows  how  the  general  level 
of  the  circulation  rises  or  falls  in  accord  with  the 
general  prosperity   and  activity  of  commerce,  how 


I'S'i*. 


i"-lp 


Kr  ,  'I    U 


riuo\}_ 


!Sl<i 


'Mi 


Till'  Citiiiii/iitn  Si/.s/i'iii  of'  \(i/r  /ssitr 


409 


tllc  ('X|iUIIHi(»li  to  m.'cl  the  needs  of  (he  iiuluillll  ailtl 
eiu'ly  wi.itei'  ;ire  ni'eater  in  one  yeai"  than  iuiothei'. 
how  (juickly  nnd  rcKuhirly  the  volume  of  tlie  cur- 
rency is  conti'ucted  in  .laiiuaiy.  how  it  icniains 
stationary  or  uradnally  falls  still  further  in  the 
inontlis  of  the  spriii";'  and  early  suMinaM',  and  how. 
from  the  end  of  .July  on.  the  process  of  ••movinj;'  the 
crops"  is  facilitat«'d  hy  an  expansion  in  the  bank- 
note circulation,  usually  from  l'.»  to  ri4  per  cent.,  hut 
sometimes  as  low  as  J  1  and  as  high  as  4'2  per  cent,  of 
the  mininnim  during  the  year. 

As  they  represent  only  the  eircnlation   on   the  last 
day  of  ea(di  calendar  month,  the  ijeures  do  not.  as  a 
rule,  exhibit  the  maxima,  or  minima  actually  rcacdied, 
and  so  do  not  fully  show  the  elasticity  of  the  currency.  . 
'riiev  are.  further,   merely  tvi)ical.  ami  do  not  rep- 
resent  the  average  circulation    in  the  months  with 
which  they  aie  connected.     They  fail,  also,  to  indi- 
cate the  diffei'ent  movements  in  diffei'cnt  provinces. 
Hut  sejiarate  tables  for  the    hanks  domiciled,  c.  f/., 
in  Quebec.   Xova  Scotia  or  New   Brunswick,    would 
be    just    as   useless  for  this  ]»ui'i)ose.     The   business 
of    numy    of    the   banks    is    carried    on    in    several 
]iroviiices.      Their   activity   moic   oi"  less   covers  the 
entii-e  national   field,  and  the   circulation  of  a  single 
bank  is  often   affected  by  as  many  compensatory  or 
oi)posite   influences   as   the   total   circulation    of    the 
whole  banking  system.   .Moreover,  there  are  no  banks 
with  head  oHices  in  31anitoba  or  the  Northwest  terri- 
tories, and  only  one.  with  six  offices,  has  its  princii)al 
Canadian  establishment    in    British  Columbia.     Yet 
tluM'e  are  seven  othei-  brancdies   in   British  Columbia. 
ea(di   issuing  the  notes  of  its  parent  bank,  nineteen 
branches  in   Manitoba    and  (dght  in  the  !s ortlnvest 


,( 


•ilO 


The  Canadian  Banking  System,  1817-1890 


territories.     A  table  by  ])rovinces  would  be  utterly 
misleading. 

In  one  respect  the  arbitrary  choice  of  the  days  for 
which  the  circulation  is  indicated  ought  to  lend  some 
interest.  When  we  speak  of  a  late  or  early  season 
we  might  say,  more  clumsilj^  no  doubt,  that  the 
beginning  or  end  of  the  agricultural,  fishing  or  lum- 
bering year  has  not  coincided  with  the  ueual  point  in 
the  calendar  year.  The  differences  in  the  lines  of 
the  chart  for  different  years  show  that  the  move 
ments  of  currency  are  automatically  adjusted  to  the 
needs  of  the  particular  times  in  the  industrial  year 
which  happen  to  correspond  with  the  last  day  of  each 
calendar  month.  The  proof  of  elasticity  is  varied, 
cumulative  and  conclusive. 

It  is  i»recisely  in  point  of  elasticity  that  the  Cana- 
dian bank  note  currency  is  sui)erior  to  such  a  circu- 
lation   as    the    bond-secured    notes    issued    by    tlie 
national  banks  of  the    United  States.     The  rigidity 
of  the  latter  currency,  the  almost  complete  lack  of 
relation  between  its  volume  and  the  currency  require- 
nients  of  commerce,  have  been  too  frequently  pointed 
out   in   the   preceding  pages,  and   are   to,/  notorious 
facts  to  iu>ed  elaboration.     The  proof  can  be  found 
in  almost  any  treatment  of  the  question:  the  pages 
of  tlu'  ProceediiKjs  of  the   American  Bankers'  Asso- 
ciation have  bristled  with  it  for  five  years  and  more; 
the    statistics   in   the  reports  of    the  United    States 
Com])trollers  of  the  Currency  establish   it  beyond  a 
doubt:  and  in  these  last  days  the  American  bankers 
themselves  have  united  to  agitate  the  reform  of  their 
own  ui)on  the  lines  of  which  the  Cnnadian  system  of 
issue   is   one  of  the   best   examples  anywhere  to  be 
found. 


*(' 


'I 


The  CunadiiDi  Si/stcni  nf  Xolc  Issik 


411 


Yet  every  good  (juality  cliaracteristic  of  the 
national  bank  note  pertains  to  tlie  Canadian  issues. 
They  circukite  at  par  throu<j:hout  tlie  h\nd.  not  because 
they  are  a  legal  tender  to  any  bank,  but  because  (a) 
the  bank  wbicii  issues  the  note  nuist  i)rovide  for 
redemption  at  a  convenient  and  accessible  point  in 
each  of  the  seven  pi-ovinces  of  the  l)omiuii»n,  aud 
(/>)  the  possibility  of  converting  a  nttte  is  subjected 
to  the  daily  test  of  actual  redemption.  The  notes  of 
a  failed  bank,  whatever  ih<>  condition  of  its  I'state, 
will  b<^  redeemed  with  interest  at  0  per  cent.  ]u'r 
annum  within  ten  weeks  of  the  day  of  its  suspension. 
The  notes  of  a  failed  national  bank  pass  at  par 
because  their  ultimate  i)ayment  is  certain:  other 
banks  are  obliged  to  take  them,  and  the  process  of 
retirement  is  i)ractically  the  same  as  when  the  Itank 
was  solvent;  those  of  an  uufoi-tuuate  Canadian  bank 
are  accepted  because  tlieir  promjjt  i-edemption  with 
interest  is  guaranteed.  Before  the  estate  of  a  liank 
in  liquidation,  whether  for  insolvency  or  otherwise. 
is  wound  up,  and  tlu^  last  dividend,  if  there  is  any 
whatever,  is  paid  to  the  propriet(n's.  money  must  be 
deposited  with  the  government  in  sufficient  amounts 
to  redeem.  Avith  interest  for  the  first  two  montlis 
after  suspension,  all  of  its  notes  not  yet  presented 
and  still  outstanding.  This  regulation,  so  far  as  it 
prevents  the  operation  of  tiie  statute  of  limitations 
ui)on  bank  notes,  is  similar  to  the  re(iuirenient  that 
natiomil  banks  shall  pay  enough  money  to  retire 
their  circulation  to  tlie  Treasurer  of  the  L:nited  States 
before  they  may  withdraw  the  bonds  which  secure  it. 

To  the  holder  of  the  Canadian  bank  note,  therefore, 
it  is  a  matter  of  indifference  whence  or  when  it  was 
issued.     The  i)aper  of  the  smallest  bank   is  as  good 


i; 


'I 


1^ 


ii 


\i 


I 

,1! 


:  I' 


!;   i 


412 


The  Cdniidian  Bunkiufj  Si/slem,  1817-1890 


as  that  of  the  greatest.  At  all  times,  in  every  part 
of  Canada,  and  under  any  circumstances,  the  note  is 
not  only  worth  its  face  value  but  will  also  be  received 
at  that  by  any  bank.  Security  and  convertibility  are 
the  great  and  really  only  merits  of  the  national  bank 
note  currency.  The  Canadian  paper  has  these,  and 
it  has.  besides,   the   invaluable  (quality  of  elasticity. 


J;.")8. — ADVAXTA(;ES     IXCIDKNTAr.     TO    THE     CANADIAN 
SVSTE>r  OF  ISSUE 

As  obtained  by  the  Canadian  system  of  issue,  elas- 
ticity involves  far  more  than  the  advantage  of  having 
a  currency  at  all  times  adjusted  to  the  need  for  it. 
Elasticity  in  cui-rency  means  elasticity  in  the  loaning 
})owers  (>f  the  banks.  The  need  for  auginented  circu- 
lation is  ordinarily  coincident  with  an  increased  need 
for  cai)ital.  either  in  pi'oduction  or  in  the  operations 
of  exchange.  Particularly  is  this  true  of  a  country 
whose  princij)al  industries  are  extractive,  a  country, 
c.  f/..  in  which  agriculture  and  lumbering  are  rela- 
tively more  imi)ortant  than  manufactures.  As  eco- 
nnniic  instruments  for  the  collection,  safe-keeping 
and  em])loyment  of  capital,  banks  are  ordinarily 
entrusted  with  funds  not  re(piired  for  the  immediate 
purposes  of  the  owners.  ^Vhen  more  capital  is  needed 
in  ])ro(luction  or  in  carrying  goods  with  the  intention 
to  market  them,  a  i)art  of  it  is  obtained  from  the 
banks  through  the  withdrawal  of  deposits  by  those 
to  whom  they  are  due.  Another  part  is  obtained 
from  loans  negotiated  with  the  banks  by  those  who 
prefei'  or  ai'e  obliged  to  operate  on  Ijorrowed  capital. 
At  the  same  tinu'.  however,  banks  are  under  advances 


4 


1 


A<lcanti((jcs  Incident aJ  to  C'miadian  ,Si/.stc»i  of  Jsmio    4i;j 

to  persons  engaged  in  brandies  of  industry  oi'  coin- 
merce  in  wliicli  the  need  for  eai)ital  is  eomparativdy 
steady. 

One  source  from  wliicli  banks  supply  borro\v('rs- 
needs,  the  cai)ital  of  tlieir  jtroprietors.  is  also  conipai-- 
atively  steady.  Another  source,  tlie  money  cntiusted 
by  depositors,  varies  according  to  the  wisli  or  interest 
of  the  depositors,  and,  for  reasons  just  pointed  out, 
in  times  of  increased  activity  on  certain  line;-  is  likely 
to  be  lessened.  The  banks  may  use  a  third  source, 
roughly  speaking,  in  two  ways:  they  may  give  bor- 
rowers book  credits  for  the  amount  of  theii-  loans.  <jr 
sui)ply  them  with  notes.  Instead  of  cajtital  owned 
by  the  bank,  the  borrower  is  usually  willing  enough 
to  borrow  of  its  credit,  oi-  the  depositor  to  accejit  of 
its  credit  in  i)ayment.  pi'ovided  he  can  get  the  ci'edit 
in  a  usable  form. 

But  l)ook  credits  Avill  not  serve  the  purpose.  Fi'oni 
prejudice,  liabit  or  well  founded  preference,  the  lum- 
berman wishes  his  monthly  pay,  the  harvest  hand  his 
season's  wages,  and  the  farmer  the  proceeds  of  his 
grain  and  produce,  in  a  convenient,  un(iuestional)le 
and  easily  transferable  form.  ^NFoney  will  satisfy 
them,  but  clu'cks.  the  value  nf  which  depends  on 
the  genuineness  of  signatui'es,  and,  to  a  certain 
extent,  upon  the  unknown  ]>ersonal  credit  of  the 
maker  rathei-  than  oii  the  well-known  and  ample 
credit  of  a  bank,  will  not  be  readily  taken,  liank 
notes,  the  title  to  which  passes  by  simi)le  delivery 
and  the  value  of  which  is  dependent  on  the  ci'edit  of 
the  public  bank  whose  name  they  bear,  are  the  only 
instruments  of  credit  available  for  large  classes  of  the 
transactions  necessary,  c.  f/..  to  nun  ing  the  crops  or 
getting  out  the  lumber  cut.     To  meet  the  periodical 


.1 
(  , 
1 
"I 

f      : 

{  j 


I  i 


\' 


•iU 


'/'//('  Cduiidiaii  BankiiKj  Siistcm,  1817-18!)0 


and  temporary  dt'inands  for  added  capital  caused  by 
sucli  operations,  the  banks  must  either  pay  out  money 
or  issue  their  promissory  notes. 

The  abstract  statement  of  the  conditions  is  easily 
conlirmed.  The  table  below  shows  that  in  the  first 
two  months  (August  and  September)  of  the  annual 
expansion  in  Canadian  trade,  bank  deposits  payable 
on  demand — the  basis,  that  is.  for  bank  credit  circu- 
lating ill  the  form  of  checks — usually  remain  sta- 
tionary or  diminish,  while  the  amount  of  current 
loans  and  notes  in  circulation  rises  until,  at  the  end 
of  October,  both  are  considerably  above  the  figures 
for  the  Hist  July.  For  every  year  since  1S89,  the 
increase  in  each  has  been  at  least  s8, 000,000,  except 
in  J  893.  when  exceptional  conditions,  due  to  the 
American  crisis  and  the  contraction  in  many  branches 
of  Canadian  trade,  caused  a  diminution  in  current 
loans.'  The  figures,  of  course,  are  oidy  for  the  last 
day  of  each  month  and  they  represent  only  net  results. 
The  item  of  deposits,  for  example,  would  be  much 
less  if  the  figures  reflected  the  entire  amount  of 
funds  withdrawn.  The  apparent  effect  of  the  ten- 
dency of  depositors  is  somewhat  reduced  by  the  prac- 
tice of  bon-owers  to  leave  negotiated  loans  on  deposit 
with  the  banks  until  they  need  to  use  the  funds. 
For  some  borrowers  the  season  of  active  operation 
arrives  later  than  for  others. 

What  would  happen  if  the  banks  were  obliged  to 
provide  money,  or  notes  (like  national  bank  notes) 
which  have  cost  them  value  to  an  equal  or  greater 
amount,  is  well  illustrated  year  after  year  in  the 
United  States.  In  the  autumn  those  who  trade  on 
their  own   capital   draw  on  their   deposits  with   the 

'See  note  I,  next  page. 


I 


Adnititiuji's  Incidcntitl  lo  Canadian  System  of  Ji^sne    -115 

blinks:  tlu'  lU'cd.sot'  the  largo  class  of  steady  discount 
customers  reniaiii  about  the  same;  an<l  at  the  very 
moment  when  deposits  are  falling-  off.  new  needs  for 
advances  arise  from  the  greatly  augmented  activity 
of  trade  in  grain,  pork,  cotton  and  produce.  The 
banks,  in  short,  lind  the  demand  for  loans  strength- 
ened: their  ability  to  meet  it,  at  the  best  unimproved. 

'Tabi.k  1-ou  CoMPAiiisoN  ol'  tliti  aiiiount  of  notes  in  circulation,  de- 
posits payable  on  demand  ami  after  notice,  and  current  loans, 
at  the  end  of  months  prior  to,  durin<:and  after  the  annual  period 
of  greatest  expansion  in  the  Canadian  bank  note  currency  (ii(»,('(i(i 
omitted) ; 


.Inly      Aiijf.  I  Sept. 


1890  I     $  8     I     $ 

Notes  in  circulation..     :I1.l'      :;i!.7  '    :'.").-") 
Deposits    ])ayable    on 

demand ""(.li      "iH.s      :)i.~ 

Deposits  payal)le  after  I 


Oct.  !   Nov. 

i 

.")7.")  i    ')■>.  ] 


l>ec.   I  .tun 


;i.7 


■c. , 


notice  or  on  a  fixed 

(lav    7ti.ii 


I 
77.1 


7S.L'  i 


'.i.'.t 


Current  loiins. 


>iii.:i|    SI. 7 


bMi.s   i.-)i.:.>    i."):;.!    ],->;;.o    i. ->:;..")   b"):;  i' ;],-,]. i 
1.0 


•>l 


1891  I  i 

Notes  in  circulation. .     IKi.ti  |    ;>'_M)     ;!4.1 
Deposits    payable    on 

demand  . . ' ■">'.(. (i  :    ."iS.")      .')',>.(; 

Deposits  i)ayable  after  i 

notice  or  on  a  fixed  ' 

day 84.0      S.").."> :    Sii.n      SS..")     sy.:;      '.io.1      iio_;; 

Current  loans i  IS-I..")    1S4.1     is.").ii    iss.7    bs7.S    isii.c,    i,s4.(i 


;)7.4|    ;!.■).(!■    ;^,i.'.7 

I  I  ; 

8..-)      110.4'    ti2.tl      ."(S.t) 


is;  12  ! 

Notes  in  circulation....    '.V2.'i     '.V2j> 
Deposits    payable    on 

(leniand j    (iii.'i 

Deposits  jiayable  after! 

notice  or  (Hi  a  fixed! 

day :    '■•:;. 8 

Current  h.ans !  ISii..") 


!4.9 


'■'>*'■'■-      IL'.S 


I 


1)4.7  ;    67). 7      (it).4  !    08.3  !    08.7      07.4 


I 


98.0 ;    9S.S  !    '.)il.9    101.2    jol..")    pi:.'.! 
SO.;;    188.2    194.1     1!I7.1     198.."«    107.2 


189:; 
Notes  in  circulation..'    ;!.">. o 
Deposits    payable    on 

demand 04.0 

Deposits  ])ayable  after  ] 

notice  or  on  a  fixed  ' 

(lav 100.4    lo.-).o   lo-t.o  :  i(i:;.,-);  10-1.4 


Current  loans 


■.\r^.]  I   :!0.9i   :!o.i     ;;4.4j   ;ui.o 

td.4      01.2      02.')      02.9  !    02.0  !    00.1 

1 

107.9;  pis. 9 
200.9    20-'). 9    204.(1    204.8  j  202.0    20O.4  |  P.IS.O 


ii 


1 


!^    V 


416 


Tlic  Canadian  Banlamj  Si/s/on,  1817-1890 


and  more  tlian  likely  much  impaired.  Under  such 
conditions  the  rate  of  discount  inevitably  rises. 
Fluctuation  in  the  rate  of  discount  is  only  one  phase 
of  the  ensuino-  inconvenience  and  expense;  there  are 
besides  this  the  annual  flow  of  currency  inland  from 
Now  York  that  costs  at  least  one-tenth  per  cent,  of 
the  amount  of  the  remittances,  the  currency  famine 
frequently  arising'  in  that  city  during-  the  movement 
of  crops  to  the  markets,  and  in  consequence,  as  fre- 
quent arrests  of  the  forward  movement  of  products, 
hardly  less  complete  and  sudden  than  those  due  to 
freiglit  blockades  or  railway  strikes. 

In  Canada,  on  the  contrai-y.  banks  are  able  to 
supply  the  fluctuating  demands  of  depositor  and 
borrower  with  bank  cr^-dit  in  a  form  that  can  be  used. 
Each  is  paid  in  notes;  resources  employed  in  the  less 
variable  departments  of  discount  business  are  nowise 
diminished.  The  purchase,  transportation  and  mar- 
keting of  the  crops  arc  accomplished  without  loss  or 
cost  to  the  banks,  without  the  rise  of  the  rate  of  dis- 
count, and  with  a  higli  degree  of  efficiency,  economy 
and  i)romptness.  The  annual  expansion  in  the 
country's  business  tends  rather  to  ease  the  situation 
than  to  tighten  loan  markets.  The  goods  are  brought 
forward  so  rapidly  and  realized  on  so  soon  that  the 
banks,  whose  loans  to  grain  buyers,  produce  shippers, 
millers,  etc.,  are  generally  secured  by  such  documents 
as  warehouse  receijtts  and  bills  of  lading,  find  that 
these  advances,  as  a  class,  are  among  the  most 
quickly  repaid  of  any  they  make. 

So  when  the  circulating  notes  in  which  the  advances 
were  made  begin  to  come  in,  the  banks,  if  redemp- 
tion sliould  be  called  for,  always  have  the  means  to 
meet  it.      Borrowers  have  alreadv  discharged  their 


r'i 


^ 


Advunhttji's  luiidi'utal  to  (auhuI'mh  Si/s/cin  of  Issue    417 

<l('l>ts  l)y  drafts  on  tlH>  Canadinii  produce  markets,  or 
iftliey  liappeii  to  he  in  tlie  exi)nrt  trade,  by  exchange 
U}»on  American  and  British  correspondents.   In  actual 
practice,     however,    the     additional     circulation     is 
returned  to  the  hanks  in  the  forju  of  dei)osits.     The 
public   do    not    dc>nuind   a  money   redenii)tion.       No 
bank,  to  be  sure,   receives  only  its  own   notes   from 
these  depositors.      What  notes  of  its  own  are  received 
are  retired  by  a  simple  credit  to  him  who  i»ays  them 
in.      The  notes  of  other  banks  thus  accpiii'ed  are  used 
to   offset  those   of  its  own  whicdi   they  may  receive 
from  their  customers  and   |)i'esfnt    in   the  daily  e.\- 
chang-es  as   claims  against  the   issuing   bank.     Th<' 
process  of  contraction,  therefore,    is  almost  as  easy 
and  as  costless  to  a  well  managed  baidc  as  that  of 
expansion.      Fiiuil  payment  of  the  autunuuil  incre- 
ment  to    liabilities    is    brought    about,    not    through 
immediate  redemption   in  hard  money,  but  through 
the  gradual  withdrawal  for  the  owners"  uses  of  the 
dei)0sits  by  which  tin-  notes  were  tii'st   retired  from 
circulation.' 

Compared  to  the  other  liabilities  on  whi(di  baidcs 
trade,  the  note  circulation,  it  is  ti'ue.  seems  of  minor 
importance.  During  the  last  four  years,  for  example, 
the  highest  amount  outstanding  has  never  been  much 
more,  and  usually  less,  than  a  fourth  of  all  the  public 
deposits  in  the  banks  at  orresponding  periods.  At 
first  thought  it  seems  unnecessary  to  emphasize  so 
strongly  the  advantages  derived  from  the  note  issue 

'For  illustration  nf  this  last  fact,  the  tal)le  lately  -.'iveii  does  not 
include  a  suHicient  number  of  months.  The  other  statements,  how- 
ever, may  be  verified  by  it,  althou'rh  it  must  a-rain  be  remembered 
that  the  (inures  -.epresent  only  net  results,  are  affected  by  a  variety 
of  infiuencesonly  remotely  connected  with  the  forces  here  discussed, 

and  refer  only  to  seven  days  arbitrarily  chosen  in  each  year, 

27  ' 


I' 


V 


If 

I    : 

w 


!  I 

It 


!. 


Uf 


'I 
If 

If. 


418 


The  Canadian  ihinkimj  Si/s/mi,  1817-181M) 


as  a  niecins  of  expandiny  loanable  (wodil,  ]5ut  Ww 
answer  to  tlie  objection  lies  in  tiie  siin])ie  fact  tiiat 
the  autumn  needs  form  tlie  /,is(  increment  of  demand 
in  the  h)an  market.  If  tlie  banks  \ver<'  unable  to 
supply  it  with  notes,  this  demand  would  be  turned 
upon  discount  resources  already  employed,  and  the 
cost  of  loans  would  be  hi^•her  for  the  tinu'.  not  only 
to  new  borroAvers.  but  to  all  the  old  ones  as  well. 

There  are  still  other  reasons  why  elastic  issue  upon 
their  general  credit  is  oiu'  of  the  most  beneticial 
functi(.ns  of  the  Canadian  banks.  The  renuirk  is 
offered  with  all  regard  to  the  extraordinary  growth 
of  deposits  exhibited  in  Appendix  I.  and  to  the  fact 
that  in  Ai>rih  :\Iay  and  June.  IS!)4.  the  circulation 
fell  below  the  average  for  fifteen  years.  It  is  ]»er- 
fectly  true  that  in  the  most  progressive  Canadian 
conmiunities,  checks  i»ayable  to  order,  as  safe,  con- 
venient and  efficient  media  of  exchang(>.  are  fast 
supplanting  bank  note  currency:  that  the  establish- 
ment of  clearing  houses  facilitates  the  process:  and 
that  the  profit  fi-om  circulation  paid  out  in  the  chief 
cities  is  considerable  only  by  reason  of  the  lai-ge 
volume  of  retail  transactions  in  which  bank  notes 
are  still  the  medium.  The  average  life  of  the  notes 
issued  in  cities  is  comparatively  short:  a  bill  paid 
over  the  counter  of  a  Toronto  or  :\rontr(>al  office  one 
day  is  tolerably  certain,  in  two  cases  out  of  five.  t(j 
come  against  the  issuer  in  the  exchanges  of  the  next 
day  but  one.  But  banking  facilities  are  not  required 
by  the  most  progressive  communities  alone;  they  are 
at  least  proportionally  essential  to  districts  less 
advanced. 

In  many  of  the  less  advanced  or  less  wealthy  com- 
munities there  is  still  the  discount  business,  accumu- 


Adi'idlhlijrs  Itin'i/i'ilfi'J  /o  ('(fjiin/inii  S^|s/l'nl  a/'  /sstif      110 


lation  of  (leposits  and  otlu-r  sources  of  l»iiiikiii<;'  pi'oiit: 


tliut    woiiid    hv    sulliciciit    1o    siinport     I 
V/liat  a<l(litioiuiI  advaiito 


ocni 


hill 


ik; 


li'cs  art'   derived 


iroin   the 


t'stablisliiuenl  of  l)raMcli  bjiuks  to  meet  these  needs 
liave  been  pointed  out  in  ^  i)^'>.  There  are  nian>  otlier 
Cana<lian('onnnunities,  liowevei- — conunnnities  \vhi(di 
we  may  describe  as  on  tlie  mar^'in  of  the  supply  of 
bnnkin^'  facilities — in  whicdi  the  protits  of  t he  loaning- 
business  and  tlie  brokeraj^e  on  deposits  combined 
would  not  pay  tlu'  expenses  of  a  local  joint-stock 
bank.  The  conditions  on  which.  thr(Uigh  the  estab- 
lishment of  branch  banks,  they  do  secure  the  faeili- 
ties  necessary  to  their  develo[)nu'nt.  are  the  ix'cnliai- 
jsibilities  of  i)rotit   and   economy  undei'  the  C'ana- 


svstem  of  issue 


poi 
dian 

Where  notes  are  based  on  the  general  credit  f)f  the 
promissors,  an  increase  in  a  bank's  circulation  is  a 
means  of  a(hlitional  profit.  X»)\v.  where  there  are 
no  banking-  facilities  in  the  iinmediat<"  neighborhood 
— in  villages  and  the  suri'ounding  counti'y  whence 
both  villages  without  banks,  and  the  smallei'  towns 
where  branches  have  been  jilaciMl.  (diiefly  derive  their 
support — payments  are  very  seldom  made  in  checks. 
The  credit  economy  oi  snch  localities  and  districts  is 
still,  to  a  great  extern,  in  the  first  stages  of  di'velop- 
ment.  Among  their  people  and  in  retail  trade, 
promises  have  sui)plaiited  iiiouty  c;'ly  in  the  form 
nearest  like  money,  viz.,  bank  not*'-.  Access  to 
banks  is  less  convenient.  Persons  receiving  notes 
are  often  nnable  promptly  to  make  a  deposit,  or 
prefer  to  hold  a  certain  ([uantity  of  this  currency  in 
provision  against  payments  for  which  distance  from 
the  bank,  custom  or  the  preferences  of  the  payees, 
make   checks   unsuitable.     Then,   too,   the  habit   of 


IS  . 
'A 


''\ 


It 
'  i; 


i 


f 

4 


no 


The  I  aiiinlidii  llmiki) 


Hij  Siisinn,  1817-180U 


rt'lyiiio-  upon  lumks  i'oi-  tli(>  saf('keei)in^'  of  s|»ar«' 
cash  is  less  stloiiM'.  So  llic  •■  life  ""  of  a  llolr  is  luUC'h 
lonj^tM-  in  the  roiinliy  and  country  towns  than  in  the 
(.'itics.  While  the  ainonnts  cii-culati'd  i»y  hraiichcs 
in  si)arsi'ly  sett  led  oi-  newly  oi»eiied  districts,  are 
small  compared  with  the  payments  made  l)y  city 
otlices,  considerable  proportions  of  the  lulls  issued 
for  use.  r.  J/.,  in  paying-  the  wa^^es  of  farm  hands  and 
lumbermen,  are  ludthei-  seen  nor  heard  of  for  averaj^e 
periods  of  from  two  to  six  months. 


J>y  establishiu''-  otlices  in  tl 


le  country  disti'icts  and 


newly  settled  towns,  and  by  supplying- the  local  need 


fori 


(»ans.  casiiinu'  ( 


Ira  ft 


s  and  otherwise  assist  inu'  in 


tl 


le   transfer  (d'  money,  a  ]>arent    bank  is  ai)le   to  *;('t 


this  lonuer 


ir<4-er   and   more   i»rolit;ible    circulation 


tor  its  own  jxiper.  'riirough  Judicious  su|>i)ort  of  the 
local  trade  and  industry,  the  branch  at  the  sanu' 
time  extends  the  held  forsafeand  prolitable  discount 
operations.  The  j^reater  number  of  e.\chanj;es  con- 
sequent on  this  development  improves  in  a  manner 
the  opportunity  iVn-  increasing-  the  note  circulation; 
by  providing-  a  place  of  secui-ity  for  spai-e  cash,  and 
by  paying-  interest  on  sums  entrusted  to  it.  the  bank 
stimulates  accunuUation  and  i>romotes  also  the  growth 
of  its  dept)sit  business. 

The  possibility  of  economy  under  the  Canadian 
system  of  issue  and  of  Itranch  banking  lies  in  the 
use  of  unissued  notes  as  till  money.  The  Canadian 
note,  like  others  based  on  the  credit  of  banks  and  not 
secured  by  the  pledge  of  particular  assets,  has  no 
value,  except  the  cost  of  printing,  while  in  the  i)os- 
session  of  the  bank  whose  promise  it  bears.  It  is  tJie 
evidence  of  a  contract  to  which,  as  yet,  the  promissor 
is  the  only  party.     Unissued  notes  represent  no  more 


Aih'ii iihiiii'x  /iirii/rii/iil  hi  ('innii/iiill  Siis/i<iil  nf  I. 


ssKi' 


\'U 


li 


t'XpciKlitiirc,  Mo  more  wealth,  than  tlic  result  ot'  a, 
iiKH-iiiiit^' spent  in  writino-  I()l"s  with  llu^  intention 
sonic  tiin<'  to  exchange  tin  ni  I'of  value.  'S'et  unissued 
notes,  except  as  small  chanjjcc.  and  tor  the  pni'poscs 
(d'  the  customer  who  occasioiuilly  reciuires  a  gold 
piece,  sei've  every  use  ohtainahle  ])y  uny  hrancli 
bank  from  money  itscdf. 

Banks  have  two  jirincipal  (dasses  of  jtaynu'Uts  to 
meet.  ]>ayments  to  the  public  and  to  ea(di  other.  Ex- 
cept when  situate  at  the  tinaiudal  centers.  Canadian 
hankinj;-  oftices  usually  settle  with  eaidi  other  hy 
means  of  di-afts  upon  coi-respondents  in  tln.se  centers 
(Toronto.  [Montreal.  Halifax  i.  They  need.  then,  no 
localized  sui)]>ly  of  money  for  these  payments,  but  a 
sutti(Ment  reserve  oi'  balance  in  the  ]ilace  where  di-afts 
ai'c  due.  i'ayments  to  the  public  are  of  two  soi'ts. 
I'ayments  reipiii-ed  foi- the  purpose  of  reniitting-  funds 
to  outside  localiti  s  are  made  by  drafts  nixui  the  place 
to  which  the  remittance  is  desired,  or  by  drafts  njion 
tlu'  ilnancial  centers.  The  only  pur]>o>e  for  whi(di 
actual  money  would  be  u^ed.  /.  r..  ])ayments  to  the 
l)ublic  in  the  locality  where  the  branidi  is  situate,  is 
satisfactorily  served  by  haul'  notes,  a  form  of  pay- 
ment whicdi  costs  the  bank  nothing-  to  keep.  The 
security  o\'  this  circulating'  medium  is  so  complete 
that  notes  ai-e  frecdy  accepted  by  the  i)ublic.  oven  at 
times  of  I'uns  upon  dei)osits.  Note  redem]>tiou  is 
brought  about  either  by  deposits  of  its  own  notes 
made  with  the  bank,  or  through  the  settlement  of 
balances  exacted  by  compt'titive  banks.  The  one 
method  merely  etVects  t  be  metamoi-i'bosis  of  thei  fedit 
accorded  the  bank  by  its  <'Ustomers.  WIhmi  balances 
in  the  dailv  bank  extdiauges  are  against  it.  a  solvent 


I , 


,i^ 


m 


n 


4').) 

^  ^  V 


Tlir  (  'iniiidiuii    liiDil,' 


iini  Si/s/r>,>,  ISlT-lHitO 


liiuilc  ill  '^tu)d  i('|iiit('  cMii  jihvnys  cfrcct  rcdcinitt ion  in 
tlir  other  iiiff  liod  by  driit'ts  ii|ioii  the  rmaiicial  (•«■  liters. 

I'lider  tlie  Canadian  system  td"  issue,  therefore, 
hankiiij;' is  carried  on  without  the  necessity  and  ex- 
pense «d'  h>cali/iiiy'  at  eac  h  odice  a  iiione\  reserve, 
and  sutticient  till  money  (d"  intrinsic  value,  to  ^nard 
ay-ainst  all  contiii^-enci<'s.  It  does  not  follow  that 
the  reserves  are  weaker:  (ui  the  contrary,  tlu'v  are 
(|uite  likely  to  he  sti-oii;;er.  Placed,  as  they  are.  at 
the  centers,  reserves  are  available  in  their  entire 
strony^ih  for  meeting  demands  wherever  such  arise. 
Furthennore.  settleinents  hctweeii  the  hanks  are 
aecomi>lished  with  a  hi;;her  economy  (d"  the  use  of 
money.  Practically  none  passes  hetween  the  hank« 
outside  the  centers,  and  at  the  centers  money  pay- 
ments are  only  used  to  distdiar^i'  balances.  The  ••ain 
in  etticiency  of  the  reserves  is  suiti»lemented  by  econ- 
omies in  their  maintenance.  Where  the  market  for 
securities  is  stronjj^  and  active.  i)art  of  the  reserves 
may  be  invested  in  first-class  bonds  and  stocks,  or 
loaned  at  call  on  the  ])ledj:^e  of  su(di  bonds  or  stocks. 
The  cost  of  holding  larj.fe  amounts  of  idle  cash  as 
protection  aj^ainst  jtossible  dan^eis  is  thus  materially 
reduced  in  a  way  scarcely  possible  when  reserves  arc? 
h)cali/ed:  locjil  markets  could  seldom  be  relied  upon 
for  the  ])rompt  conversion  of  secui'ities. 

How  <;-reat  is  the  saving'  of  interest  on  the  hard 
cash  which,  without  the  ability  to  use  unissued  notes, 
the  banks  would  he  oblij^cd  to  ludd  as  till  money,  is 
not  ])articularly  ditlicult  to  calculate.  A  --suit  of 
notes."  /.  c..  the  <|Uantity  <d'  hills  prepared,  signed 
and  delivei'ed  to  the  vai'ious  <dlices  of  a  bank.  is.  as  a 
rule,  from  one  and  a  half  to  two  times  as  ^reat  as 
tlie    hif^hest    ]»roportion    thereof  ever   in   circulation. 


f 


.I'/nni/'ii/rs  htiitlriihij  h,  ('„)i.nliii,i  Snsh 


nil  (I 


f  i 


SSlll' 


4^:) 


'I'lir  ji<lvuntji«v  t.,  thr  l.iiiiks.  an. I  li. •!•.■.  ;ilso.  t..  tlM> 
|>iii)lic.  is  iK.t  (III,,  to  a  nrw  pmfit.  hut  to  tin-  .•coiioiny 
<>t  real  capital  possihic  iiy  use  of  iiot(>s  as  till  inoiK.y. 
If  the  hanks  w.-i-c  (h-pii  vcd  of  this  advantage  it  is  safe 
to  say  that  they  would  he  ohli;;('(l  to  withdraw  sonic 
!t^l(>,(>(i().()()()  to  si:..(iO(>.(»(H)  now  cnii.loyrd  ill  the  trade 
and  industry  of  Canada.'  This,  h<.  it  understood,  is 
(luitc  inrlcpcndeiit  of  the  sMo.dOO.OdO  to  s:!8,0(m».(I(i() 
more  that  the  hanks  would  necessarily  withdraw  if 
they  were  ohliy-ed  to  secure  their  notes  hy  pleilge 
of  bonds,  or  were  suhjected  to  almost  any  (»ther  regu- 
lation under  whicji  it  would  cease  to  lie  pnicticahle 
or  advantaj^cous  to  use  unissued  notes  to  till  their 
tills.-'  Without  the  savino-  ,,n  till  money  and  the 
extra  ^^ain  from  rural  circulation,  the  hanks  could 
not   serve   the   couiiti'y   so  cheaply  as  they   do   imw. 


.  iS 


'Cf.  II.  II.  Infills  I'alL'tiivc,  "Aniily.sis  of  tlm  I'vi.lcnce  taken  be- 
fore the  Select  Cniiiniittef  of  tlif  Ilciist'of  ('oniiiHiiis  (III  Hanks  of 
Issue,  1S7"),"  Lonilon,  ls7tl.  p.  11;  ^ilsd  Replies  to  Questions  :;siil.;;, 
44(iS-<»,  in  the  eviilence  itself. 

-Under  the  sn-caileil  "Haitiinore  plan"  lately  aiipmvetl  hy  the 
American  Uankers'  Association,  the  American  banks  anil  pulilic 
would  enjoy  the  inciease  of  loanable  funds  possible  under  a  system 
of  issue  a^'ainst  the  ^'eneral  creilit  ol  the  jjromissors,  but  nuuiy  of 
the  banks  would  lie  |u'evented  by  the  very  activity  of  theii-  liusiness, 
from  sharinj:  the  advantajre  of  costless  till  money  naturally  incideni 
to  su(di  a  system,  luicli  bank  wouM  receive  only  the  amount  of  its 
authorized  circulation  in  bills  prepared  by  the  United  States  ^'ov- 
ernment.  ami  as  the  limit  proposed  for  each  is  unly  half  theamount 
of  its  piiidup  capital  stock,  it  is  probable  th«t  a  j;reat  many  of  the 
hanks  would  be  able  to  circulate  up  to  their  limit  and  thus  have  no 
notes  h'ft  for  their  tills.  One  way  tn  secure  the  ailvantajje  would 
be  to  transform  the  "surplus."  in  many  cases  now  very  lai'.:e.  into 
capital.  r>ut  when  a  bank's  (ijieratious  are  conlined  to  a  sin^de 
locality  and  one  idlice,  till  money  becomes  practically  iudistin^'uish- 
able  from  cash  reserve.  The  itnjiortance  of  economies  in  till  money 
is  not  so  ^'reat  as  under  a  system  in  which  the  i.ssue  of  imti's  aizainst 
fieneral  credit  is  scientiiically  combined  with  branch  liankin<:. 


11 


1  i 


ill 


iU 


Thr  (Janndiuii  linnkiivj  Sf/s/r,t),  181T-18!I0 


Willi  th 


o  sources  of  Hhmi-  adva 


nccs   partly  diverted 


to  other  i.i,ri.(.s,.s  and  partly  dried  ni>.  thev  would  In. 
ol)li«vd  to  raise  the  rate  of  discount  or  he-in  a  Ion- 
c-ourse  of  personal   disc  riniination   in   supplyJi-.w   tiie 
needs  of  their  customers 
Ma 


I'onnnunities  enjoying-  tlie  support  of  haul 


KS 


as  wealthy,  well  inanaK-»'d  and  st 


lar^(>st    cities,    could    no 
witi 


rono-  as  those  in  tin 


ionj;(>r   have  such  facilities 


nn  their  midst.      D.-positsat  i»l, 


ices  •■  on  the  niai 


«i.iof  supply"  are  often   insiv,nificant  and  the  I 
korao-e    ,„i    them    trifling-;   the    profit    on    1 


>ro- 


(iiscounts.   even  with  fhe  addit 


half  to   on 


inf(>r 


•  '   and  a  half  p(>r   cent. 


lority    of  tiu'    loenl 


slij>:ht.      rnsuppleniented  hv  i.roti 


oans   and 

lonal    charj^-e  of  one- 

on   account  of  the 

security,    is    coniparativelv 


]»roht  on  circulation  and 
diminishe.l  l.y  interest  on  till  money,  t  he  two  to<,-etlier 
would  often  fail  to  pav  the  sal; 
of  a  hranch.      Without  tl 


effected    under    th 


iries.  ])ostaH-e  and  rent 
lo  snviii!;'  and  the  extiu  ^•aiii 


anadian   system  of    issue,    th 


i'.\tensioii,,f  l.raiiv  h  hjinkiii: 


A\-  i  ( 1( 


nor 


4'  would  have  heen  neitl 


ler 


'    tliorou<;h   as  it  has  heen.'      Teculiar 


I.ossii,i!n„.s   ,,|     protit    have    induced    the    hanks    t. 


cstahlish  II, 'w  hramdies.  and 


hanks   luis  forced  them  to  divide   tl 
imhiic. 


•onipetition  hetweeil  the 
le   proiit   with   the 


I!.  K.   \V;iIk(M-,' Hanks,  ( 


illia'l; 


of  I'oliticiil   K.'MiKniiv 


ill  IriLrlis  I'ak'ravc's  "1> 


piiitiiiii  (if  ilt'iKisit.' 


NfW  Vork,  Isili,  \nl. 


iclicitiaiv 


II  caijilal  is  still  sn  sr 


P 


Mill. 


'1- 


l>aiikin^.'  ciiilil  lint  have   riMciicil    its  pi 


•.!1 


tl 


lat 


It'  |ii'i- 

I'lailrli 


(U'\.-lnli|iU'llt,   hut   lor  ti 

has  liccii  aiL'iH'd  that  if  tliis  | 


lirt'stMil   <'otii|)arativ('ly   iKMl'i-ct 
iciK.tc  is>ii('s  not  hfinyspfcially  scciiiril.     It 


SlU'Cli'll 

iiavt'  tl 


lowiT  was  taken  away  or  rciiiacod  hv 


V  sccurc' 


is.siii",    perliaps   one-half  ol    tiie   hranciie 


.s    Would 


Jicsrrres 


A'it) 


Jv  59. — KESERVKs 

• 

Ct()1<1.  as  we  luiv.-  seen,  is  no  part  of  the  uiecluiiiism 
of  Canadian  hankino-  operations  ontside  tlie  cenlers. 
Except  for  niakin^^  change  nnder  five  dollars,  tliere 
is  a  like  economy  of  other  kinds  of  money,    c.   ,f.. 
Dominion  notes,  for  wliicdi  nold  or  its  eciuivahMit  must 
he    ^-iven.       AVe    have   seen    further    that   the    child" 
hauki.i}.-  reserves  of  th(>  country,  as  in  (ireat  Britain 
and  tile  Tnited  States,  are  concentrated  and  kept  in 
the    princii.al    UK.ney    markets  of    the    land.      Five- 
eio-htlis  of  all  the  hanks  in  Ontario  and  Quehec  have 
their  head  offices  either  in  Montreal  or  Toronto,  and 
tive-eiK-htlis  of  the  Xova  Scotia  haidcs  have  their  prin- 
cipal estahlishments  at    Halifax.     Tiie  proportion  of 
hanking-  capital   managed   from  the  cente.s  is  mucli 
greater  {riilr  ^  M]).     So.  too.  with  reserves.     Though 
it  was  moi-e  or  less  disti-ihuted  among  their  hranches, 
these   twenty   institutions   controlled   >;l7.(t(i:].()S(!  of 
tlie  s-J(i.i»7s.()L>;5  of  specie  and    Dominion    notes  held 
hy  all  the  hanks  in  the  countiyon  thelJIst  l)ecend)er, 
IS03.      On  the  :{()th   dune.    1S1)4.  the  proportion   was 
^17,(547, ."■).').■)  to  s-il. 4:).-). 'Jl  7.      lianks  with   head  ofhces 
elsewhere  situate  either  have   hi-anches  of  their  own 
in  one  or  more  of  these   cities.   ,,v   kee[.   halanees  on 
deposit  witli  othei'  haidvs  there.'      Kour  haid^s.  ,>u(^  in 

'Tliis  slatfiiii'iit,  liUi'  iiKii'.'-  (.tliffs  of  ;'  siiiiiliir  ;_'i'iicr:ilil\  .  iice.l.s 
sciiiif  (iiialilicaticii;.  Tlic  Imnkiiii:  ilc\ cinpin.'iit  nf  ('aiiM.la  is  not 
altujretluT  limiKtmMUM.iis.  any  tnorc  than  Ilic  cliinati',  the  race  types, 
tln' trail)' ami  (M'oMoniic  interests  ill  iJilTi-renl  parts  of  tiie  (■(Mintry 
are  cast  in  Mne  rniaiiii.  'i'lic  trnniilf  is,  the  very  distance  of  the  sev- 
t'rai  prcivinees  anil  nf  tiie  areas  of  tliicl<i'st  sett  h'inent,  one  I'roni  tlie 
other,  presents  a  serious  oiistaeh'  to  Canadian  nnity.  In  n.'.nv  res- 
pects the  old  provincial  se|>aration  still  snrvives,  and  tliere  are  a 
few  hanks  I  lie  I  art  h  est  I  ini  its  of  whose  opera' ions  are  t  he  iMinndaries 
(d' tludr  respective  provinces.  The  hiisiness  of  the  Maiitiiiie  i'luv 
inces  is  quite  distinct   in  nnnieroiis  important  details  from  that  of 


4 


■i'^G  The  CioiniHon  Hioikiiui  St/sfrui,  1817-1800 


Toronto,  two  in  Montreal  and  one  in  Halifax.  a|»i>ar- 
<Mitly  have  the  lion's  share  of  the  bnsincss  as 
hankers"  hanks.  On  the  :51st  Decomher.  liS'.):?.  they 
had  !i<J..S4.").()r)7  of  the  s-i.4^?(>.S74  rei)orte(l  as  --(leposits 
payahle  on  demand,  or  after  notice,  oi-  on  a  ti.\e(|  day, 
made  hy  other  hanks  in  Canada:"  on  the  IJoth.lnne. 
1S!>4.  s|.S(i().-J14.  ont  of  a  total  of    s-2.:5.VJ.r)Or>.' 

•  hit  there  is  this  ditferiMiee,  already  noted  in  an- 
othei-  connection,  hetween  the  Canadian  oi-^anization 
of  credit  and  that  of  (Jreat  Britain  or  the  I'niU'd 
States.  The  centiali/.ation  of  hankinj..'^  management 
permits  jiractieally  the  same  disp(»sition  of  the  haiik- 
injTf   reserves  dni-injj^  ci-itical    perictds  as  in    ordinary 

Qiielifc,  ami  in  sjiitc  of  tlieir  lonj^-  luiion,  Ontario  and  <^ieliec  coulil 
not,  witliont  i-xoi-ptions,  he '(ifscrilieci  as  one  umlivided  licld  of 
activity.  Of  really  riiararteri.stic  haniis  of  the  Canadian  system, 
liowever,  every  one  of  the  larjier  provinces,  except  New  Hrnnswick, 
perliapH,  ami  Manitoba,  has  one  or  more  i>rincipal  estahiishments. 
These  corporations  iiave  placed  ollioes  in  provinces  otlier  than  tiie 
site  nf  their  head  otlices,  and  ^-'>t<)e  nf  them  have  opened  nj)  in 
British  Cojiimhia,  Manit(d>aor  New  I?rnns\vick;  otliers  ajrain  in  two 
or  tiiree  iirovinct-s  besides  their  own.  It  is  chiefly  sncii  banks  of  a 
national  or  semi-national  activity  and  importance  that  shonld  be 
kejtt  in  mind  while  the  Canadian  banking  system  a.s  a  whole  is 
under  discussion.  Still,  remarks  about  them,  excei)t  those  relating 
to  territorial  e.xtension,  <:enerally  apply  with  scarcely  diminished 
force  to  Canadian  banks  of  a  more  local  character. 
'The  proportions  for  each  of  the  four  banks  were: 

oil  till'  -W 
[U-r..    \>'Xi 

ikliD.'i.iil  1 
•J7"),'.Hiii 


i'.aiik  of  Montreal 

Canadian  l?ank  of  Commerce 
^lerchants'  Hank  of  Canada. 
Merchants'  itank  of  Halifax. 


.i:;.oiil 


'i'otal,     t  bank? 
Total.  :'.'.> 


.   J,|--'i»,s71* 


:iii.luiii'.  IM'I 
t;7o:;,)uo 
•-'7:;,74s 

."iSS/iOl 

L':;4,ln.-) 

.^l.soo.i'N 
•_',:!■")■_',  Jii'i 


How  far  the  Hank  of  Montreal  is  the  "Canadian  i'.aiik  of  Kn^rland," 
appears  in  respect  to  the  item  of  liankcis  balances  from  the  li'^mes 
*  I.fss  ('iiiniiict'i'ial  Hank  nf  Maiiitdlni.  t.~>~ii. 


/iV'.sv'/VV'.v 


\mi 


427 


times.  Contlict  ,.f  inton-st  L.twr,.,,  nrl.an  and  rural 
banks,  and  tli,-  institution  ..f  dau-.-mus  inland  drains. 
are  ,.vils  of  panicky  times  in  tli..s<-  otlu-r  count  rirs 
tliat  (Vma.lian  hanks  arc  usually  aide  to  cs-apc 

The  ar^nnnents  for  rc(,uirino-  hanks  alwavs  to  hoNI 
money  reserves  (..(ual.  at  least.  1..  a   tixcd  proportjou 
of  their  liahiliti<-s,  arc  hardly  a  part   of  our  sul.jc-t. 
There   is   no  such  ol.liu-ation    lai.l   on    th.-    Cana'diau 
banks.      It    may    he   possihl...    i,y    n-'ulati-.n   of   this 
type,    to  comi)e!   certain    looscdy   mana-cd    hanks   io 
keep  on    hand    more   nearly   an   adc(|uate  suppiv   of 
cash,  hut  l)ehiml   the    j.olicy    ih,.rc    lurks    the    thcorv 
tliat  legislators  better  understand   the  ri-ht   condu(-t 
of  bankinKMhan  hankers  themselves.    The  ar-unH^nts. 
valid  in  Canada,  a-ainst  a  tixed   reserve,  have  hecn 
given  at   ler.uth   in  our  statement  as  to  certain  pro 
ceedinjrs    preliminary  to  the   Hank    Act    revision    .d" 
ISUO.     To  recapitulate  here,  the  most  obvious  is  the 
principle  that  a  banking-  reserve  is  a  n^source  to  he 
iLsed  rather  than  to  he  -loated  over  and  talked  about. 
just  as  fresh  troops,  if  available,  are  used  t<.  lui'u  the 
ude   of  a    JKird   f,,u(;-ht   aiul    undeciiled    hattl.'.     The 
military  anah.oy  is  (dear.     Aside  from  this  cousider- 

jiist  driven.  It  is.  t-  l>t«  snri",  tl.e  ohU-st  iuid  l.y  far  the  hir-est  hank 
HI  ("auada.     It  is  the  pivcrnim-iifs  ilepository  and   liscal  a^rent:  in 

*''^'' '•■%•  ii>arl<.'ts.,|-  Chica-...   New   V,,ik  and   l/.ndnii,  ti^e  three 

irreat  renters  cf  coinnierce  fur  Kn^dish  .speakint;  laees,  it  is  a  factor 
wli. ISC  ini|Hiitance  may  justly  he  termed  considerahK'.  [n  Canada 
its  eontrul  df  enormous  resources  makes  the  I'.ank  .if  .M.inlrt'al  a 
tower  of  streii^'tii  to  the  hankim.'  system.     It  cnimands  the  hinhe.-l 

respect,  tlie  nnwaverinj:  ( lidcnce  and  tlie  implicit  reliani'e  of  the 

entire  connfry.  Uut  it  lias  no  peculiar  privile^'es,  n<i  i|iialilicd  mor,- 
opoly  like  the  I'.ank  of  Kngland.  and  its  hirnicf  predominance  is 
somewhat  lessened  liy  the  fact  that  there  are  now  two  otlier  h.Tiiks 
wliose  comliined  resources  are  nearly  eipial  to  its  own.  .Maiiv  ,if 
the  other  hanks  also,  arc  now  richer  and  more  powerful,  compan-d 
to  til'.'  liank  of  Ah  lilt  real,  than  were  its  cuui  pel  i  tors,  f.  ,'/. ,  [n  l>o: 


4-28 


Thr  ('inuiili(i)i  IlinikitKi  Sjish'Di ,  1S17-18'.MI 


atioii  \vi'  have  to  note  the  false  sfciirity  iiitluccd:  tho 
fact  lliat  tlic  rt'(|iiir('in('iit  lias  not  been  lived  up  to  in 
the  I'nited  States:  the  I'ise  of  the  I'ate  of  interest 
occuiTini;'  wlien  resefves.  c.  (/..  in  the  city  of  New 
^'ol•k.  ai'e  reduced  to  neai'  the  le^"al  niiniinuni:  tlie 
necessaril>-  somewhat  <;reater  instahility  of  conmier- 
cial  coiilidence  undei'  sucdi  regulations:  and  the  sutti- 
ciency.  proved  hy  Canadian  e\])eri<'nce.  of  th(>  fii'st 
lien  as  secui'ity  foi-  the  ultimate  i)ayment  of  note 
lloiders. 

Some  illustrations  have  been  <;"iveii  of  the  manner 
in  \vlii(d;  the  reserves  of  well  manai;'e<l  l)anks  vary  in 
hei!j;lit  at  different  times.  'I'liev  also  vary  in  compo- 
sition according;'  to  the  circums,  inces  of  ditTerent 
hanks.  A  hank  with  its  heail  oflice  in  Hamilton. 
<>tta\va  or  Sherhi-ooke.  needs  to  keep  its  jtriucipal 
reserxfs.  U'lt  as  money  at  its  pi'incii>al  estahlishment. 
where  payments  to  the  public  ai'e  (dii<'tly  in  notesand 
to  the  banks  in  drafts,  but  as  a  balance  in  Montreal 
oi'  Tordiitii.  where  the  i>rinciiial  demands  ujioii  its 
I'esiTN'e--  are  ]iayable.  Ainl  amom;-  b;inks  situate  in 
the  ci'Mtei's.  tliei-e  is  tile  "greatest  diversity  as  to  busi- 
ne>s.  Sdiiie  -specialize  i u  a.n'ric ul t u I'u I  imsiness:  some 
ha\ea  liinii  projioi't  i(!n  of  lumber  account  >:  some  en- 
joy the  custom  of  Iiir.L;('  impiU'tiU';'  honses  with  heavy 
custoiiis  duties  to  pay  from  time  to  time:  others  may 
111-  characterized  as  largely  tradesmen's  l)aid<s.  and 
oihe!--;  are  liea\y  dealers  in  e.\chan;^"e:  or  a*;aiii.  the 
proportion-  in  which  \ai'ious  banks  comliine  sucdi 
classes  of  trade  are  different  for  each  one.  Some 
banks  have  enoi'iiious  balances  loaned  at  call  in  the 
rniteil  States,  others  hai'dls'  an.v  whatever.  For 
some  t  he  amount  of  deposits  pa>ai)le  aftei-  not  ice  f)r 
on  a   lixiil    dav.  i->   twice,   foi'   sonu'   thrii'c.  for  others 


/I'csrrrrs  fj<i 

four  liiiifs,  t  lie  aiiioiiiit  |i;ival)l<'  cii  (IcinaiHl.  ^oinc 
luivf  issued  iKitt's  clusc  to  t  lie  aiil  Imrizcil  limit,  two 
or  three  circulate  barely  oiie-tiflli  el'  wiiat  they  law- 
fully uiay.  (  »ue  hank,  at  least,  has  heavy  unxci-ii- 
lueut  (le])(»sits.  and  is  constantly  eal'  d  on  I'm-  lar^e 
payments  of  hard  cash :  others  ha\e  no  ^(ivernnient 
account  whatever,  or  only  the  small  df]io-^its 
have  ohtaine(l  as  tenqmraiy  keepersot'  revenue  ' 
tlu'  fiscal  au'ent  has  no  othce. 

What  le;L;islatoi'.  then,  wlmt  haid^er.  oi'  wha 
ventiou  or  conunittee  of  hankei'>  can  riulitly  ti 
pi'oportioii  of  s|iecieaiHl   hominion  notes  ;i  l)aid< 


tie  'y 
u  licie 

at  con- 
ti.\  thr 

uil 


ventiou  or  c((nunittee  of  hankei'>  can  ri.ulitly  ti.\  thr 
pi'oportioii  of  s|iecieaiHl  hominion  notes  ;i  l)aid<  >hall 
always  hold  against  it<  liahilit  ies  r  The  true  jMdpor- 
tions  are  as  numy  as  the  hanks  t  InniseU  o.  as  di\fr>e 
as  the  character  of  tlii'ir  husiiiess  on  hoth  sides  of  the 
account,  and  as  (dian;;in;4'  as  times  and  eir,'unisiances. 
At  best  tlu'  est;il)li.>hment  o|'  a  nnnimum  ri'>eive  is 
an  attempt  to  do  hy  lej;'islation  what  leL;i--lat  ion  can- 
not accomplish.  Laws  may  foi'i)i(|  coi'porat  ions  to 
eii}.;"a}^"e  in  any  hut  a  strictly  hankiuL;  ini^iiiess.  iiut 
for  the  wise  conduct  id'  tiiat  husints--.  the  oid>'  real 
provisions  are  the  hank's  iiisi  inctsof  sdf  pre-^rixat  ion. 
and  tlu'  enli<;'htene(l  S(df  interest  of  sliarelioldei-s  and 
(lii'ecters  in  choosinj;-  eHicient.  e.\perience(l  men  to 
inana*;'e  theii-  trust.  I'pou  directors  and  managers 
alone  de[temls  the  choice  of  a  hank's  inxcstmeiits; 
accoi-din<;'  to  the  wisdom  or  f(dly  ol'  their  (dn>ice — 
the  value  and  li(iuid  nature  of  its  loans,  or  liie  depre- 
ciation and  fixity  of  its  investments  the  hank  will 
prosjier  oi'  perish.' 

'CI'.,  en  lIuMiiifstinii  of  U'.servf-,  llio  irciu'ial  priiiciiiU's  laiil  ilowii 
l>y  tlie  eminent  (ieiiiiaii  aiithnrily,  l>r.  Acii'lph  \\'a'_'iier,  in  iiis 
treatment  <>[  "  Der  Isieilit  n.  das  i!anl<  Wesen."  First  as  to  tlie 
reserve  of  the  liank  of  issne;  "'I'lieoniy  tlieoretirally  an. I  jiraeti- 
eully   corrert  coverin),'   for  notes  HJecUnn},')  is  tiie  one  olitaineil  liy 


tl 


I  ft 


11' 

1 

1 


!U 


:    f 


if 


430  'lite  ('i(ihhli,(,(   l!,/iil,-i/n/  Si/s/i'in,   ISII-lSlM) 


I-'oi  the  Coiir  tmd  oiic-liiilt'  y<';irs  iircccdiii^'  t  Ik.  1st 
.1  Illy.  I>'.t  I.  tlir  imioinils  ot'  sitccic  ;iinl  l)oiiiiiii()n  iiutcs 
li«'l"l  I'V  ;ill  the  cluirtiTrd  Imilk-^  ill  tilt'  end  of  cacli 
(•;'lcii<l;ir  iiKHitli  li;i\  .•  a  Vfiiiufil  '.>.  I  I  |»('i-  cent .  of  t  licii- 
total  lialiilit  it's  oil  coiTcsitoinliiij^'  tiays.  Tlio  lowest 
iM'i'f.'iilauf  sliowii  l.y  till'  liaiik  Statfiiifiit  was  S:  tlu' 
lii,--Iif>i.  Id.iiS  por  font  .  This,  it  will  ho  obsfrvi'tl.  is 
t|iiito  as  lii;;ii  a>  tlio  iirtiport  imi  t>\'  inoiicy  kojit  tui 
liaiiil  liy  tlio  Kiin;-|isli  ;oiiit-stt)fl<  haiiUs.  altht)U;;li  for 
most  ot'  tlifiu  <;ii|(i  aiitl  its  jiraftifal  t't|uivalt'iil .  Haiik 

liaiikiii'_' c,|,cialiiiii..,  Jiiiiik  ii.:is>i^'.,M;  tli:il  is,  tlif  f'i\  fiiii^'  w  itli  f:i>li 
ill  proiK'i  i-omliiiKitiiiii  willi  easily  icnli/cd,  short  tt-riii,  li'.'iils  to 
tleiiiaiiil,  I  I'.,  (ii,>t(iiiiittMl  iintfs.  I'.iit  tia' t'DiriM't  iifij,'!''  ■'' tlii' s|ifcit' 
reservf,  ,,r  its  iniiiiiiiiiiu,  cannut  l)e  tli'tcrinineil  tor  tliu  liani<  tif 
issue  fitlicr  in  alisnlntc  !i<.Mir('s  >iv  as  a  pr<  |Mii-tiiiii  nf  tin,'  oiitstiunliiij,' 
(•iri'iilatimi.  It  iit'|ieii'is  on  tiie  L't'iit'ral  fuiiMitinn  of  fit'dit,  oil  tiic 
I'lt'iiit  of  till'  liaiik,  on  tlif  state  of  tiie   iiimiu"    iiiarket,    on  tlu'  edU- 


'iiti'ins  i>f  in'lii>trv,  edini 


iierce  a 


Mil  iinjitics,  on  the  course  nt'  I'oieiL'ii 


e\(liaii>_'f.  III!  tiie  [hi  iuijical  neeil  of  foiui'ieree  for  ciirieMcy  — U|  on 
wiiii  lithe  value  nf  the  smallest  notes  is  also  iiiliueiitial.  The  cash 
reseive  niu.-t  also  siilliee  fur  any  unusual  return  nf  iiutes  tn  the  hank 
ft)r  re'ieini>ti(Ui.  It  tan  never  lie  foiisiiieieil  alone,  hut  niily  in  etJii- 
iiectioii  with  tlie  nther  assets,  es|ie('ially  tlu>  iliscounts,  ami  must 
naturally  he  liiiiher  fur  :i  liank  of  issue,  when  at  the  .siiiiie  periotl  it 
holiis  large  amounts  of  lieposits  either  lUi  time  nr  at  call." 

Next,  a-  to  the  cash  or  nmney  resei\e:  "'l"he  ('ash  lioserve.  Its 
prni'd  aiiiMuiit  is  .lejieinlent  u|Min  the  lime  which  the  hank's  lia- 
hi lilies  iiave  to  run, — as  t^  tliose  iliie  on  demaml  (iintesaml  de posits), 
unoii  thei-  variahle  aniMiint  and  tiie  tinienf  the  actually  resulting 
deinaiios— an  I  further  upmi  the  demands  for  credil  to  which  the 
hanlv  must,  in  the  cmuisc  of  lMisine>s.  rt';;ularly  ii'spdiid.  \\  itli 
dejiL-its  at  iiill  or  short  notice,  tlie  reserve  must  he  l;i!'<;er  than  w  ilh 
deposits  at  InnL'  notice.  Kuitlier,  the  ccinditiotis  of  the  time,  the 
state  of  politics,  of  the  money  market,  the  course  of  the  fin-ei<_'n 
exchaii>:fs,  etc.,  etc.,  are  to  he  re;iariied.  .Now  a  lar<.'er,  now  a  smaller 
reserve  need  he  inaintaineil,  especially  when  the  other  asset.s  are 
ea-<ily  and  speedily  availalili;  i  realizalilel.  *  -1=  *  »  'I'he  cash 
reseiM-  at  any  one  lime  really  adeipiate  can  only  lie  determined  hy 
the  hank  itself." 

\'i'h  s,. I,,, 111,,., J,  editor),  ■'llandhuch  der  I'olilisclien  t  Mkonumie," 
Tuhiii'^'en.  IS'iii,  \ol,  i,  jip,  loi'  and  4:'.s. 


/ir.svy/v.v 


4:51 


of    Eii^-l;ili<l   notes,  iil'c    tlic   oiilv  till  irioiicy  jiihI    foiiii 
\n\v\s  i>i'    tiicir    hiisiiicss    iriiic|iiiici'\  .      (  M'    the    ciitiif 

l)iUlkilln'     rcS.TVf.     it     is    11 jlo.s     t,,      >;,v,    ||lull(\      I'ollllS 

only  a  pai-t:  the  iiimirdintf ly  availal.l.-  assets  li<.|,| 
l>y  the  Caiiadiaii  hanks,  like  those  li.l.l  l,v  iji.. 
En^-lish  lianks,  are  in  nincli  higher  rati.,  to  the  total 
liabilities  of  the  system.  'I'luis.  the  items  which  niav 
he  taken,  in  a  i'on,i;h  way.  as  const  it  nt  in--  the  hank 
in^^  reserve  of  all  the  Canadian  hanks  were  rei»orteil 
at  the  I'ollowin;;'  amounts; 


olst  Dec,  l-'.i:;  :;ii||i  .luiKf.  IMH 


1.  S|HH'it' aiiti  Dniiiiiiiitii  iiutcs.. J-H.'C-.iiL':; 

'J.  IJalamvs  due  IMnii  a^'eucicMir  tiu'liank 
or  from  otlicr  lianivs  ur  aL'tMicifs  in 
torciL'n  (.DUiitrit's 

'.'>.  I?alaiu'es  diu'  Iruiii  a^'ciicics  of  the  Imnk 
fir  fniiii  ntlii';-  Lank-  or  aj^cncifs  in 
till'  riiit('<|    Kin^'iioMi 

■I.  Itoiiiiiiion  <  ioverniinMil  dflicntiiics  or 
stuck 

">.  Caiiailiaii  iiniiiici|iai  seciiriiies  :i  n  d 
I'irilisli  |iro\  iiicial  or  lort.ii.'ii  or  colo- 
nial |ml>lic  securities 

ft  Canailian.  r.ritish  or  mhei  iiilwav 
sfcuritics ". 

7.  Call  loan.s  on  lionds  or  stocks 

S.  I)('|iosits  pavaMc  on  ilcniaml,  or  after 
notice  or  on  a  lixcd  May.  made  with 
other  l)anks  in  Canada 


I  *<.■.'•-" M' Is        l^,H.".ii,S'.'-_' 


i,r))o,i.'-_Mi 
!,HM,:;s:; 


,  l"'7,ll:; 


'.i/,i,sl  .oso       |o,s."i',i^;;',i.| 


li.tl'.iL'.S'il. 

i,L':;t;,ti-j!i 


1 1 


,-|it,7ii7 

tilHl   IM.") 


,ti.;o,s>;; 

Total Jisii.  )>-!  ,"c.'-j 

Total  lial'ilities 'Jls,!',!.':.'.'.!!,:, 

I'ercei.iairt' of  reserve  li    lial'ilil  ies ;t;.s.", 


*s... 


L'S7,L'.V. 

:.7.78-l 

!!•_',  7' '7 
:;ii.:;u 


As  ini;.;lit  iieevjteid  'd.  the  jiroportion  of  the  \arioiis 
components  to  the  \n  iioje  reserve,  and  of  the  reserve 
to  total  liahilities.  varies  widely  as  hi'tweeii  ditVereiit 
banks.  Italiief  interestiiio-  com|lal•ison:^  and  a  sub- 
stantial basis  for  criticism  could  he  derived  from  a 
table  showing' month   b\-  month   for  a  series  of   vcars 


?i< 


Adfi 


'I'hr  ('(nnn/imi  liinil^'iini  Siislnn,  ISII-ISIM) 


tiip   iuMporlinn   of  (|iiick-    jisscts   hfld   by   llu-  scvci'til 
banks  ;iL;aiiist  tbfir  total  (b-bts. 

Tbcr'f  ai'c  t  \\<  Mil  >j<M't  ions,  bowcvrr.  to  tbf  inclnsion 
of  sncb  a  tal)b"  bore,  its  ^icat  l)nlk  and  tlic  anibif;nil y 
of  ccrtjiin  itfiiis  in  tbc  foi-m  of  tbc  statement  to  tbe 
^•overnnient .  Some  call  l(»ans.  <■.  </.,  may  be  speedily 
I'ealized  only  at  a  considerable  cost.  ()ni\  for  tlie 
bank  to  wliicdi  tliey  belong-  is  it  jiossible  closely  to 
estimate  the  amount  of  its  assets  immediately  axail- 
able.  e'tber  foi'  coinrrsion  into  cash  in  ('anada  oi-  in 
tbe  I'nited  States  and  (ii'eat  iWatain.  as  a  balance 
a^'ainst  \vbi(di  to  draw  bills  (d"  e.\(dian;;'e.  This  view 
of  tbe  (|nestion  is  admittedly  soniewbat  doubtful. 
Any  banker  wboiri  one  addi'es^ed  would  prcdiably 
<leny  its  pertinence  to  bis  own  l)ank  and  a\cr  tliat< 
tbe  (|ui(d<  assets  held  by  bis  institution  were  of  tbe 
j^ilt  edii'e  type  tbron^bout.  \'ery  properl\'.  too.  he 
nd^bt  express  ij^-norance  as  to  tbe  position  of  bis 
competitoi's  in  tbis  I'espect.  A  more  reasonable  view 
<d'  the  ipiestioii  would  be  to  take  it  foi'  ;;-ranted  tliut 
public  secni'it  ies.  railway  lionds  and  call  loans  are 
wortb  ajiproximately  wbat  l!u'>'  are  set  down  for. 
and  usable  wlu'nevei'  recpiired. 

( »n  tbis  su|iposition  1  have  ma<le  a  study  of  the 
I!ank  Statement  for  tbe  last  five  years,  with  iiarticu- 
lar  refei'cnce  to  reseives.  l<'or  most  of  tbe  banks  llie 
results  foi'm  bi;4bly  creilitable  indications  of  Uie 
wat(diful  care  of  managers  in  j^uardinj^-  the  staiiility 
of  their  inst  it  utions  and  in  keepiii}^-  ample  provision 
for  every  continf^cncy.  I>ut  the  reserves  of  a  few 
banks  have  almost  regularly  been  bidow  the  point 
whi(di  the  managers  of  other  l)anks.  not  too  dissimi- 
lariy  situate,  have  seemed  to  rej^ai'd  as  l)olli  ]>ru(U'iit 
and    safe.     This    fact — the   C(»mmon    pi'operty  of   all 


I 


;i^ 


li'cMrrrs 


4o;j 


Nvl...   ti.k-."  suni.-i..nt    inl-ivst  in  l.inikiii-.  ciiivfullv  m 
study  tl..-ni..Mllily  stnlcMicnt      is  .,i„-   iv;,snn  fnr'il,.. 

"'" "   <'ls<-wlH'n.   .•nlvaii.-.Ml  (.^  :,:,).  that   tli..  nurnlHT 

"«    (•■•iMa.liuM    .•liart..nMl    l,ai.l<s    i,mv    \,r    |,.^.    i„    tli.. 
'"iitiirc  than  it   is  to-day. 

^  One   .d'  tile    ni..st    IxMirticial    niin-.r  .(Vccts    uf    i|„> 

Dank  Circulatinn   l{c.|.. nipt  ion  Kimd  lias  hrcn  ili..  n.-w 

(•"Minmnity.,1-  infivst  anion-  hanks  wld.di  -n^usoiit 

of  their   (•<.iniii..n    liahility    with    ivs|,..ct    to   thr    nir- 

rcncy.      It   is  hchcv(-.|    tliat    this   ad\  aiiia-v  is  hardl v 

l<'ss  than  that  dcriv..,!  i,,  t|,,,  Cnitcd  States   ri,„n   tii".- 

phiii    of  comliiiKMl    ivserve^.    h,.i    it    is    realized    in    a 

somewhat     dilferent    way.       The    (dfeels    of     tiir    fund 

(•liielly  appear  intiie  o-reater  inter.'st  taken  hy  hanks 

in    (>a(di    otiier's    welfare,    the   stronovr   solidaritx    in 

maintaining^- e(nili(h. nee.  the  iiiel  illation  more  pioniptly 

to  grant  deserved  assistaiieo.  and  the   mor."  powerful 

motive  to  act  as  mentor  in  reeallinu'  soniewhai  errant 

Ijaiiks    to    the    paths  of  sound    policy.       'I'h,.    stron-- 

hanks   liave   thems(dves   tlie   ])ow<'r   to    hriii--  tlightv 

ones  to  time.  c.  (/..  in    the   hist   resort,  hy  r. •fusing  to 

take  (diecks   ujton    them.      Other    sanctions   are   less 

severe:   hanks  not  relatividy  so  strong  ai'e  frtMiUeiitlv 

ill  need  of   loans  or  othei- aeeonimo(hit ion.  and  a  word 

or  two    from    the  grantor  of    the   accommodation   is 

generally  suflicient. 

Hut  the  day  may  come  when  a  hank  or  I>anks.  wlio 
have  heeded  neither  friemlly  warning  nor  safe  priii- 
cijiles.  and  who  have  h  ng  lacked  reserves  hy  others 
tliought  adeciuate.  will  he  unahh  without  iielp  to 
make  the  payments  so  rigidly  exacted  hy  Canadian 
hanks  in  settlement  after  the  daily  exchanges.  And 
then  it  can  liardly  lie  expected  that  other  l)anks  will 
consent  to  pi-ohmg  the  existence  of  competitors  who 
28 


H 


^:« 


M 


•l'">4  'I'll'   CiiiiiiiUini  /liDilri/ni  Si/s/r,i/^  ISll'-lHiH) 


li;i\r  fiiiiNt;iiitl\'  IxtiTowt'd  at  iikut  ami  Inainil  at  It  ss 
tliaii  the  ciii-i'dit  rates,  who  liavc  ••  |MTsislfiil  1\  Imilt 
upward  ami  mitward  the  lalwic  oT  credit  wjiilc  pcr- 
sistciitly  wliittliiin'  away  its  l)asi'  ""  In  a  system 
wlii're  the  security  of  hanking-  eperat  ions,  within,  of 
''"'llr■^e.  the  field  where  hauUs  may  work,  is  almost 
entirely  depemlenl  on  tim  skill  and  sa;;acit\'  of  hank 
in;;'  mana,L;ement.  the  presence  of  institutions  in  any- 
wise hadly  mana^'ed  is  an  annityaiice  to  well  ,i;ov- 
erned  hanks  ami  a  menace  to  the  stability  of  com- 
mei'cial  contidence.  It  not  only  a,i;';4ravates  hankin;^" 
c'om]»etit  ion.  hut  it  keeps  a  host  of  unworthy  or 
incapahh'  traders  on  their  feet    lone-  after  they  ou^ht 

to  lia\  e   heen    t  Uriled   down. 

I  repeat,  therefore,  as  my  own  empiiical  and  inde- 
jiendent  ojtinion.  that  the  pr(d>al»ility  of  stroii^'  hanks 
iidvancin^'  funds  to  tide  such  hanks  onci-  failure,  is 
extreUK'ly  duliious.  As  to  what  steps  they  imiy 
take,  one  possihility  can  he  inferreil  fi'om  the  action 
of  the  other  hanks  in  ;;ivin,L;'  help  that  tlu:  h^edei-al 
l!ank  mij;'ht  wind  up  with  open  doors.  Another 
course  Would  he  to  let  the  iuNolved  itauk  ^n  down  in 
un.(|ualiticd  failiii-e.  as  t he  Conunercial  itank  of  .Mani- 
toha  wa>  allowed  to  ,n'o.  When  the  condit ion  (d'  a 
hadl\  manai;ed  or  nnprosperous  hank  is  t(derahly 
understond  hy  the  public.  thi>  course  is  the  most 
convenient:  the  jtublic  forewained  are  foreaiined. 
and  no  panic  whatever  f(dlows  the  failure.  A  tliiivl 
course  would  atVect  only  the  hardc  in  trouble  and 
some  one  of  the  others.  Tlie  tiMuble  mi^hl  be  so  far 
anticipated  that  tlie  shareholders  could  a^ree  to 
reduce  the  uoiinual  value  of  their  slocdv  and  I'atify 
pioposals  foi- aiiuilj^aniation  with  anotlier  i)ank.  \>\ 
any  couise  (d"  the  threi'.  tlie  number  of  banks  would 
be  reduced. 


II 


■if 


.'♦'•».       i;am<    inm'I:,  tk.n    am.   tiii;    hi;i-M>n,,i: 
'"'"-•  "^  iiMpli«'<l  ill  tin     l;;iiik    A.I.  tin    -/. /.o.s/7M,"\vit  h 

it  '•liiirt.Tc.l  |.;|lllc  is  ;i  [HTM. II  cilluiM-  (.(•  |.,Mki|,o.  ,,|,t 
^'"'     'll'llSflf.  TImt.'     is     II,,     |r,|||i|viiic||I     ..!      ;i      lix.d 

ivs<'r\.-  Wn-  his  prntcciinii,  n,,  -nvnniifin  iiisjirct  j.mi. 

'I'll.  |-,.;1SU||S  tur  th.  hltt.T  .Mllissinll.  if  Midi  ..ll,. 
cIkx.Scs  I(,  Ciill  it.  li;|\,.  ;i||v;i.|v  l.rrll  ( 1,  •t  il  ,  I.  ■(  I .  Tlwv 
liuiv  l)c  similii;iri/cW  Imiv  ;i>  ,,,,  III,.  iiiii,i;i,M  icii  Mlit  y 
of  cnicicnt  ;;ov(.|iim.iit  iiis|irct  ioii  wlirr,.  I.aiiks  ;irc 
as  coinitlcx  and  t  licii  iHisiii,'>s  a>  wj.l.si.rra.l  a>  iiii.ifr 
tilt'  Canadian  system,  and  (In  the  |(i'n\isioi,  t'l-r  iii- 
spcctii.ii  already  adoptc.i  hy  the  hanks  themselves. 

Iiis|.eeli..ii  is  an  iiiie-fa!  pari  (,f  a  Canadian  hank's 
{idniinistrative  routine,  the  ui-vA  Im-  which  has  heen 
proved  in  a  iiei;ative  \va,\  hy  the  expeiieiice  ef  hanks 
who  have  iien-lected  it.  Lenked  at  tioin  alioliier  si<le. 
it  is  essential  to  xmnd  inaiiam'ineiit  upon  a  full 
know  <'d;;e  i\\  a  hank's  liahilities.  assets  and  eiicnni- 
stances.  A  iiaiik  \\  itii  a  iiiimher  of  hrain  Ins  usually 
employs  at  least  one  <dli<'ei' exclusi  ve|.\  lor  the  service 
of  inspection.  In  the  Lii-.t  hanks  he  ranks  third  iu 
t  he  hierarchy.  cniiiiiiL;  next  to  the  assistant  j^eiiera! 
inanae-er  of  assistant  cashier,  reports  le  the  ,L;'eneral 
inana^'er  or  cashier,  and  is  under  his  direction.  It  is 
the  iluty  of  the  inspector,  with  his  assistants  (  who  in 
some  hanks  may  he  thice  or  four  in  nundier!.  to  make 
the  round  (d"  the  hraiiehes  ea<di  year,  or  oftener.  if 
l»ossihle,  to  j>ass  upon  I  ho  \  alue  and  (diaracter  (d'  t  he 
coniniercial  paper  and  other  iie^dtiidde  securities 
composing'  the  hankiii;;-  assets  of  the  oltices.  to  check 
over  t  he  hooks  and  otherwise  to  verify  aceoiints,  t(» 
inquire  intc.  the  ^^cueial  working,  prospects  and  husi- 


P 


43G  The  I'll  undid  )i  /!>in/,i)iii  Si/.s/,/ii,  18i;-l8lM 


ncss  of  tlh'  s.'\.iiil    l.rnncli.'s.  and  f..  riinii>li  ih'tailrd 
statiiiifiii-,  ..|'  his  (iii.liii-s.  ci'it  icisiiis  and  ncoini 


lirli- 


dat 


it>iis  to  I  he  yt'ih  ral  iiiaiui}^^*'!' 


Thr  ;;•- 


iitral  iiiaiia;;<'i'  Iia>  his  own   opinion,  hf   li; 


IS 


iiHui'malion  as  coiniih'tc  a<  tlic\  can  make  ii  trom 
l>ranrh  niana^fi's:  hr  nr.'ds  ihc  conlt  of  ihr  in- 
spector's observations  as  to  the  salue  and  cliaracter 
<d  his  hank's  assets,  and  it  is  -iven  hini  with  fidhiess. 
ronra.-e  and  iiKhi.endence.  j'.v  coni|>ariii^' t  he  t  hfee 
\  ifws.  the  ncncr.il  niana;;i  r  has  a  proper  hasis  foi- 
il<'fidin--  the  poljc  \    he  w  ill  pni'sne.  the   provision    ( 

leconunend.  and  t  he  eiirtailiiieni  or 


or 


l»ad  del  its  he  wi! 

extension  of  the  (.perai  ions  of  the  respect  i\e  hranch( 


r 


le  inspector,  as  his  rank  indicates,  nnist  he  a  hanker 


(d'the  first  class.  In  order  to  the  just  yppraisal  of 
tlie  l'aid<"s  loans,  his  exjieiieiice  innst  lie  wide  and 
liis  Jud-inent  t  rnst  W(.rt  hy.  When  the  iiisjiect  ion 
stall'  is  lar.u'e.  the  work  of  the  tdiief  inspector  and  his 
assistant  is  conlined  to  this  proldein.  and  the  (Mpially 
diflicnit  task  n{'  icportin^-  on  the  ;;-eneral  jiolicy.  pi'os- 
jiects  and  position  of  the  hramdn's.  ('onntini;-  casli 
and  checking;-  hooks  is  left  to  the  ront  ine  inspector 
and  the  inspect  ion  (derks. 

There  is  an  idivioiis  propi'iety  in  the  insjtectoi-'s  re- 
port in  «,'•  to  t  he  (diief  administrative  (.nicer  of  tlw  hank, 
rather  than  to  the  president  oi-  Iteard  of  directors. 
Should  he  report  to  them,  the  strained  rcdaiioiis  likely 
to  arise  het  ween  mana^tr  and  hoard  or  manager  and 
inspectoi'.  woidd  he  intoleral)ie  Then.  too.  tiie  data 
ohtaincd  hy  inspection  are  essential  to  tlie  nnina;;e- 
ment  (tf  the  hank  rather  tliau  to  the  siipervisi-  n 
exercised  l»y  the  advisory  coMimittee  of  shaiidiohlers. 
Cases  (d"  collusion  between  a  general  manay-ei-  and 
an  inspector  are  rare.     The  latter  is  alwavs  a  l»anker 


liiiiih  //i.^irr/iiiii  mill  till  hi'iKisihi,-  4;i7 


wli"    hiis    his  MWii    cihls.    iv|,ilt;ili.,n    iiihi    riitllic.       II.' 

\V'>I||<|    ,,ut     ^,.,i,,     l,v    slllJtilVil,;;    liini>.    If.         If     tl,,.     l,;,,llv 

'^'""''''  '"''•  >•"•  i'il''t>  WniiM  In.  rcitaili  tu  |,.;il<  mH. 
"'^  """"•  \\"lll.|  In.  l;iliii.||,.,|;  liis  ..iilv,.r  niin-'il. 
''"'^''''■"^.  ""'  I'llhlic  illV  Clilicill.  TIm.V  |i;iv..  S....11  ;iii.l 
''"'■•"■''  ''""  I"  'I"'  i"M-  lllll  ;i  l,,l|il<  \vlii(.||  |;,lU.  fllils 
li<.r;ius(.  nf  l.;i(|  (Irl)ts.  Tliry  Imv..  ;ils(.  miiic  i,,  l„.|i,.V(. 
tli;il  I'lliciriit  iiis|.(..-ii..ii  i-  iIm  ..iil>  |H.svil.|,.  ni.'jins  tn|. 
;i    li;mk    |>ri>mi)t  l_v    |u    ;M(|iiir..    kimu  |(.«|u,.  ,,1'    ii>   |>;i(i 

(ifhts  illxl    |.r<>\  idr   r,,|.   Ill,  I, I    ill    time.       Tlir  pilMir   will 

K'"ssi|»  (if  ;i  l.;mk  jis  ,,f  ;i  w.iiuiiM.  If  it>  i ii>| .. .('I or  is 
Ji  wrak  man.  of  ^11^1,1  ;il,iiiiy  ,,r  haij  rliaraci.T,  iiii- 
sci'iipiiloiis.  a  nine  cl.ik.  (•..mi, .(•!•■, I  l,\  family  tics 
with  the  ;;i.iicral  iriaiia-vi',  ,.r  oiIk  I'wi^.  likrly  i,,  lie 
1 1)1 1  close  til  him.  the  |iiiiilic  will  say  ••!  In  ■:■,.■>,  n,,  iiisp,.,. - 
tioii  whatcvi.r  of   that   hank."  and  ad  accoi(lin<;ly. 

So   the   (lt']»ositin\    if    he    ciiooMs   to  sc-k    it.   call    still 

liavt.  th(.  scciifity  of  ins|M(tion.  not.  t"  In.  sni-i..  cai'- 
ficd  on  fof  his  sjiccial  pidtcction.  Imt  >>\  an  iii>|M.(tioii 
moi'c  c\|M.nsi\c.  thorough  and  caiiaMo  ilian  the  woik 
of  L;'oV(i'iimcnl  oiliciaU  w(.||  coiijil  h,..  ♦Mr  cnjovs.  it 
is  true,  no  jircfi.rrcd  claim  ii|imii  the  assets  id'  an 
insolvent  dehtiH'.  e\.n  thon-h  his  de|Mi>.ji  \,v;\y  no 
intei'est.  Ind(.cd.  tlii'i.e  classes  of  ci-ediita.-,  note 
holders,  the    hoininion    u-'X-eiaiment    and    the   pi'ovin- 

cial     i;d\  eilinients        mn->t    he  pa  id   in   full    hefel-e  he  -vts 

a  cent.  The  feal  >ei  iirity  of  the  ih  iio-lior  i--  found 
in  the  lari;(.  capilaU  and  i-eser\c  fnnd>  of  the  haid^s. 
th,.ii'  pfiidenl.  cai(.fnl  manauement.  th..  doulde  lia- 
hility  of  shareholders  and  the  personal  Joint  and 
nnlimiled  lial»ilil>  of  diititors  uiiiity  of  \iolatint;- 
]iro\isions  of  t  he  Hank  Act .  It  has  hei.n  ar-ned  I  hat. 
takin,:^-  the  system  a-  a  \\  hole.  sharehoidi.|s  inn>t  lose 
S(',:!.(i(i().ii()ii  ot'  siihscrihed  ca|iilal.  sC,;!.(  loo.noo  mere  of 


■:-i: 


4;{S  77/,    CiiKr/iio/  Haiikiiiii  Sjisliai,  18i;-]S90 

(loiil)!*'  linliility  .uhI  s-iT.ooo.ooo  ,,f  rest,  sl'.il^ooo.doo 
in  nil.  Ih'Coiv  (lc|M)sii()i's  can  lose  on  tiicir  claiins  for 
)<174.(>0(i.O(i(».i  Tile  security  atVonhMl  .Icposiinrs  l,y 
iiKlividiial  i>a-iks  is  iiii'rc  oi-  less  than  tlu^  avciaj;.' 
iutlicaicil  liy  tlit'si'  li^iircs:  hut  it  is  hi;;li  in  cvci-x- 
cast',  'j'hf  fxiMTiciicf  of  t  wotity  sovoii  ycai's  with 
fail(Ml  hanks  shows  that  whri'c  (h'jiositors  and  all 
othrr  cr.Nlitors  have  lost  one  doihir.  siiarchoid.  rs 
have  lost  t  wclvc. 

To  ;;;iiil.'  liis  choico  ot'  a  i>  nik.  i  he  depositor  lias  tlie 
int'oi'ination  ohtainahh'  fi-oin  the  monthly  hank  state- 
ment, the  eoimnon  rejuitation  of  the  different  corpo- 
rations, the  ;;-eneral  opinion  jtassed  upon  their  ollicers 
and  the  criti  isms  of  new>pa]>ers  and  tinancial 
journals.  If  ihi-on;;h  ii;noranee  or  e.xees-^ive  timidity 
lit'  is  inelined  tt.  disti-ust  his  judj^ment .  tlie  ^■t)vern- 
meiit  is  always  reaily  to  htu-row  his  nionev  throu<;h 
the  pt)st-otlice  or  ^n>vernment  savings  hanks,  and  to 
l>a>-  at  least  the  current  rate  of  interest  on  tiiu" 
<k'posits.  Well  inlormetl  persons,  however,  especially 
those  tt)  whom  time  and  the  ctuistant  avuilahility  t.f 
their  funds  are  ctuisidei-at ions.  id)ject  to  the  inconven- 
ient restrictions  ami  red  tajte  appai-ently  necessarv 
t(»  ili'ixisits  in  anil  withdrawals  from  the  government 
banks,  ami  pi'cfer  to  leave  their  iiamey  with  the 
chartered    hanks.-' 

'I!,  K.  W'alktT,  •' ( ';iiiaili;ui  Hiiiikii)).',"  Jimrifil  nf  the  Cnhaili.m 
liiiiiki  r.t'  A'-Hiiiuiitioii ,  \iil.  i,  [I.  I'll. 

-Still,  tilt'  l.iilaiifes  iliu-  hy  :ill  \hv  ixnyiTiinit'iit  lnuiks  Iia\i  rist-ii, 
aliiiMst  steailily,  fruin  !r-">.i':;i',7:i:;  uw  tlu'  I'.ntli  .liuic.  1^7:',  tt.  >4:;,m:;i;.- 
ii:;ii  nil  thf  :;nili  ,|iiii,.,  |>.:)|.  d'uiiji,.  Affinuits.  Canada,  l^'.'.;,  p.  71;, 
and  Citii.Kla  Hn:,ltr,  vol.  xwiii,  |i|i.  .'.ii'j,  .".ft"  )  'I'w  i^;ity-livt'  iiiilliniis 
(;jL'">/_'')7.sti"')  (if  til  is  wasnwfil  liy  1 1  if  iKPst-i.Mlfe  liaiiks  an.  I  >^!.").s(i:;.L'n'.( 
Ity  the  }:.i\t'riniii'iit  saving's  hank;;,  tlif  IntttT  l.fin^  mostly  in  tin' 
inaritiiiif  ;.rii\  incfs.  Tlif  fiin.lH  tinis  eiitaincl  arc  not  iininc.liatfU- 
iiivi'stfii    11!  ,-c.iiiitii'S,  as  tlii'v  art'  i-i  (i 


art'  i'l  (iri'at    I'.ritain.     'I'l 


It'  Lr.i\en.- 


l><niL-   Insjiir/idX  itail  I  In-  Jlr/msi/ar 


439 


If  t.ic  (l('iM)sit(ir  will  ngfiT  tn  lc;ivr  liis  iiiMii.'y  wiili 
the  liiiiik  for  a  spccifK.,!  t  iim.  or  iidi  tn  wiilidraw  it 
witlKtiil  j^iviiio-  11, .tier,  iisiiailv  of  ten  or  liftcrn  days. 
tlio  ciiai-tcrcd  Lank  will  i»ayliiiii  an  intcrrst .  t  lie  lair- 
rnit  rat<'  iiow  hoiiii;-  :!  to  :\\  per  (•.nt.  Tlio  liiL^hrr 
current  rate  is  paid  wiitn  the  periiKl  is  oiio  id"  tliirc 
to  six  inont'is.  ,.r  whrii  thirty  or  si\t\  da>  s"  not  icr 
(d'   witlidrawal  is  a^ri'cd  npou. 

Deposits  of  this  class  ti;;iirc  in  the  I'rturit  as  ■•de- 
posits made  Iiy  the  pnhlic.  pa\  aiilo  a  ft  or  notice  oi-  mi 
a  lixed  (hiy."  Their  lar^c  anionni.  slOD.lt-.M.lfJ.''  on 
the  ;!()th  June.  JSHI.  well  indicates  the  cHjcicncv  of 
tlie  Canadian  system  in  .i;at  hei'ini;-  up  the  spare  cash 
of  Ihepeoph'and  in  (inickcnii^  the  How  of  capital 
(lishursed  ainoii^-  lahoiers.  farnieis.  artisan^  and 
otiiers.  Iiack  to  the  (dunuuds  of  comnit  ice.  It  nmst 
he  rememhereil  that  tlie  sum  is  almost  elitirelv  of 
Canadian  colli  I'ihnt  ion.  The  discDimt  rate  has  Ion;;' 
been  so  low  in  ( 'aiunla  as  to  pi'i'(dude  the  pnditahle 
ein]»loyment  of  I'iritish  funds  hearin;^'  the  inteicst 
wlii(di  (dlier  colonial  hanks  ai'e  aide  to  offer.  Cana- 
dian hanks,  thend'ore.  ha\e  iini  de\(  loped  a  I'ldtish 
husiness:  their  forei>;n  liahilities  (liiol!.\  arise  from 
transactions  in  excdian^'e.  Interest  hearini;-  deposits 
are  re^^-ai'ded  hy  the  ('anailian  depositors  in  the  li^-ht 
of  in  \  est  nii'nts:  hy  the  hanks,  as  amoU'.;  the  nio-t 
satisfactory  and  ha--!  1  roiihlesniiie  (d'  their  liahdities. 
Thev  are  exideiiced  either  hy  depesii  I'iceipis.  m-. 
when  made  t  hr>ni.uh  ■  "  .i  s  inj;s  I'.ank  I  >epart  nu  lit  s."' 
hy  entries    in    the    pass  he.. k  .d'   the  ciediter.      A-   in 


f^ 


iiu'iU  aits  mmc  as  a  Imii  uwcr  t  i,. in  as  a  tn  ;>?<■«•.  1  •»■]..  sit-  iikuIi  with 
its  lianks  pass  intn  tlic  ( 'iiiis(ili'l»<<J  Kf\<-iiiH'  I  iiinl,  am!  iiiti  i.-it 
a  111!  wiiliilraw  als  .ei'  a  diaiye  'ipiii  tin-  (•■veiiii.'.  i'.utli  it«'iii-  api'i  ar 
in  the  i;iiilj.'ct. 


41(1  Till'  Cintiiiliiiii  HiinkiiKi  Sii<lnn,  1  SI  ;-lsii() 


\\ 


ollur  coimlrics.  tlu'  notice  <>r  \vitlHli;t\v;tIs  i'('(|tiir<'(l 
t'l'diii  (lt'|M)sit ors  t)f  the  lijltt  r  soit  is  (Icsi^^iicd  to  }iro- 
Ifci  tilt'  lunik  at  critical  times:  ordinarily  the  money 
is  paid  ov(M'  as  soon  as  llie  depositor  siL;iiiiies  his  wisji 
lor  it.  'The  more  lurniaiKMit  (diaracter  ot'  siich  de- 
I'osiis  lies  in  the  intentions  ot'  the  makers  rather  than 
in  the  practical  conditions  (d'   their  withdrawal. 

The  person  who  wishes  to  retain  complete  contr<d 
o\er  his  moneys  deposits  them  on  demaiul.  Comite- 
tilioii  t'ornK'rly  led  the  hanks  to  pay  interest  on  the 
halaiices  of  act ive  current  ;ii-i-oiints.  Now.  however, 
the  custom  is  nearly  olisolete  anion;;'  well  managed 
hanks.  In  rare  cases,  when  the  halance  (d'  the 
depositoi'  is  |;ir;4i'.  has  a  |>ernianent  character,  or  prte 
motes,  as  an  account,  impoitanl  incidental  advan- 
ta;;es.  the  hank  ma\  siill  allow  an  intirest.  Asi.le 
t'i'iimthe  com  eiiience  (d'  makiii;;'  iiayinents  throunh 
the  hank  and  I  he  seiMirity  <d'  liinds  hd't  with  it.  the 
ilepM>iiiir  oil  demand  '_;ener;i  ily  expects  to  derive 
i-ertain  other  lieiielits  t'roin  the  hank  in  his  relation 
to  it  as  a  horrower.  lie  cann"t.  therefore,  exact  .-^o 
mueli  a->  the  cnslonier  who  in<i-ely  exjiects  the  hank 
to  hold  hi'-  savings  sate,  and  to  w  honi  interest  is  paid. 
partl\  as  a  just  ci 'm|ien->al  ion  \i^y  the  use  of  his 
money,  partly  as  a  means  to  the  impoiiant  economic 
end  of  utili/im;-  all  the  axailaiih'  capital  of  the  com 
munily  in  the  oj>i'rations  <d'  trade  and  industry. 


vf'il.         IIIK     s||M;i:n"|.lii:i;      AM*     Miii;|;o\\  I'.i;     <U'       I  111'', 
CANAUIAN     I.XNK 

I.  As  ;;uaraiitoi-^  i.f  its  liahilities.  the  shareholders 
(d'  a  hank  are  liahle  not  oul.\-  for  the  amount  of  their 
snli>,eripl  ions  j.i  vtoek.  hut  als.i  fi  ir  a  n  o.pia  I  amount 
in  aildiliou.    The  verv  fact  lliat  t  lose  to  fi.\  e-sevenihs 


Slmn'/iohl,  I-  ,, ml  I 


I'O'i-on'or  nf  Ihr  Cininlian  /;,ni/[-       11] 


of    tile   Inl;il    Tt'Si  .i|  fc,  .s  ,,|'    < 


ffoin    SMiirccs   diliri'    ili;in    tli 


:iii;i(li;iii  liiMiks  jirc  ili  rived 


plltcilt    tile    I 


•II'    l'iM|)i-iri.)rs.    iiiiiki 


i''«'«'>>il\   loi-  soinc  Mich  .-liiirniit.'f.     \';iri- 


«MIS  pivcauMoiis  ;iiv   ,.st;il,lislic,l    l,vl|„.     l',;,i,lc    .\ 
onlcr  thiit  thr  liability  of  siiaiv|„',M.Ts   shall    1 


ct      III 


n'    fcal 


i\n<l  availal.h'.      A    now    hank    may  nm    .st^ni   witlmut 


«-ivmo-  siii)siaiitial   ex  id 
<'()|itril)Ut«'d     hi,ir'    fill, 
.H-l<'cfiii,«;-  tu    pay   calls   ma.lc    hy  d 
per  cent.  ,,f  th.ir  shares:   thcv  niav 


••IK'"'   «'!'  a    fapilal    fonndal  hui 
Siiloci'ihrrs    rcfiisin;;-   i>r    tic- 


ii'i'Ttors.   fiirfcit    1 


Dot   \  .>!(•  at  nil 


ell 


iii^-s  while  ca.     .  then  due   h\    t 


<';ills   nia.\    he   ■  nl'drced    1 
hold. 


ii'iii.  art'  -till    unpaid: 


•y    >nit     or    siitheieiit    of   th 


li"l<l<Ts"  stock  may  he  sold  lo  pr,)vid<'  tlie  amount 
necessary,  alter  deduction  >,\'  expenses  and  penalties, 
to  pay  u])  th.'ir  reinainin.:;-  shares.  The  provisions 
for  promptly  enforein-  the  d,,nhi.'  liahilily  include. 
tiin()iie-.,thers.  entile  t  ileiture  of  claims  to  .lividends 
on  refusal  to  ])ay  calls,  the  recovery  o!"  calls  h\  suit. 
and  the  eontinued  liahility  ot'  t  he  t  iMiislVior  on  shares 
the  transferor  whi.h  shall  have  heeii  re-istered 
witliin  sixty  <lays  of  the  hank's  siispeiisi.  n  of  pay- 
""'nt.  A  further  safi  -iiard.  etfecti\.'  chietlv  as  an 
exhii)it  of  the  chaiacter  of  ,  ,ich  hank-  -  proprietar\- 
and  the  idiaii_;-es  occiin^in;;-  1  herein,  is  the  re(|uirenieiit 
of  an  annual  return  t  ■  fli-'  Government  of   the  names 

<d    the   shareholders  o  I    .     ich    I  la  ll  k.  t  he  l  r   p  la  ees  ot'   resi- 
dence and  the  amount  of  stock  held   |i\   eai'li. 

(Mler  clauses  i>\'  the  ai't,  dealiiiL;'  with  i  he  ti'ans- 
niission  of  shai'-  declare  no  transfer  valnl  unless 
reu-istered.  and  a-ci'ptcd  hv  the  person  to  whom  it  is 
made,  nor  unless  i|e  petson  mak  iii^  I  he  t  raiisfer.  if 
so  r''<piired  \t\  till'  hank,  has  discharged  his  dehts  to 
tim  hank  exceeilini;  the  \alue.  at  the  current  rale,  of 
tile    remainiii;^-   stock    h.  loni:'!!!--   to    him.      The    hank 


4l-.'  Tlir  CitHddian  ISitiiking  Siishm,  lSlT-1890 


liii^  ;i  ])i'i(ii'  licii  on  sliarcs  dl"  jicrsdiis  iinlfhtt'd  to  it.  a 
scciiiit  v  on  which  it  iiiusl  realize  hy  selliiij;'  the  stock 
within  twelv(>  months  after  the  (h'l»t  l)e(.'onies  due 
anW  th't'aiilt  occurs  in  payment.  I'ai'tly.  it  is  sup- 
posed, to  pi-event  speculation  in  shai'cs.  no  contiact 
to  1  ran>fer  shares  is  \alid  nnless  the  ]ierson  makinj;* 
the  transfer  is  the  rej^istered  (»wnei'  of  lh<^  sluires.  or 
has  tlie  owner's  consent  to  the  sale  and  specilies  the 
dist inj^uishiui;'  nund»ers.'  if  any.  of  the  shares  ti'ans- 
ferred.      ••  *      Tuder  these  and  a  numher  (d"  other 

rest  I'ict  ions  for  the  most  pai't  only  of  t<'<dmical  lej^'al 
interest,  his  position  as  a  )j:uaiantor  and  the  liabilities 
of  the  shareholder  are  tixed  and  cei'tain :  if  he  luive 
vi>il)le  Wealth  other  than  his  stock,  they  are  practi- 
cally inevitahle. 

As  a  proprietoi".  or  rathei'  as  an  investoi-.  Iii>  jiosi- 
tion  is  not  always  m>  ceiiain.  Huyinj;"  or  suhscrihinjj; 
to  hvink  stock  i><  a  husiness  venture,  suhjeci  to  the 
liusiiiess  v\>\\.  The  pi'otit  from  the  invoiment  de- 
pends, more  dl'  less,  ujioi)  the  sa}4,'acity  and  prndenci' 
with  which  the  risk  is  place<l.  l*assa;^es  in  the  his- 
torical chapt  el's  of  this  in  vest  i;^at  ion  ha  ve  shown  how. 
in  form<'r  years,  shaieholders  have  Ikumu'  well  \\\\x,\\ 
the  wlude  hiii-deii  of  loss  caused  hy  careless.  nnsi>und, 
dishonest  oi-  imprudent  l)ankin<^.  a  loss  t  hat  can  he 
estinuited  at  nothin^^  less  than  s-io.oiio.ood  in  t  went  \- 
seveu  years.  What  ha->  happeiiecl  will  hap]ien  here- 
aftei'.  The  lirst  purjiose  of  successive  i mpi-o\cmen t s 
in  I'.auk  .\cl>  must  he  to  nnnimi/e  injury  to  hank 
creditors,  rather  than  to  hank  piopi'ietors.  Still, 
('anadians  fie(pientl\  remark  thai  faults  in  hanking- 
nuina;4eni-iit  are  fewer  now  than  they  weri'  in  earlier 
vear>.  or  thai   the  husiness  is  conduit '••!  on  sal'er  lines 

I(  iH  iH't  tlif  cii^iniii  if  <  ';inMi!i;in   liaiiks  In  iiuiiilitT  tlu'ir  sliarcs. 


Sharrhuhirr  ,nnl  lU,rrovvr  nflhv  I'nuu.li.,,  Il.nk      4.j;; 

than  ev,.r  l„.fo,v.  ,,,.1  tl..y  lH.li..v,.  .lu.f  ti,.  Tutun- 
will  l.nn-  fnrilH,.  i,ni.rnv,.ni..nt.  Kvils  \v.xx,^  n.^-,y 
''*'':"""•'■•'  ^''^^"  sp..ra.lir.  .Vn.M„lM.rofl.;,nksl,.-,v,. 
*'n|(.y,M|  a  sL^uly  .mu-,!,  f,,.,„  t!,.  tin,.,  tlu.v  w.n- 
stHi-t.Ml:  ,„  l.ad  tiMH.s  ilH.v  l„v.,  ,„.H,aMs.  sliohHv 
••"<luc(.(l  their  ,livi.|,.,uls.  I.i.t    th..vlK,v..   ahvav.",....;, 

«'»•!<'  I'>  ITovi.l,.  for  loss....   Cn,,,,   t  h.    I.alanr,.  .•„  ,.,• t 

ot  profit  aiul  loss.      A  miiuhrr  ..f  ..fhrrs.  „,„  .,„ii,.  ... 
f<.rtuiiat(".  whilo  ol.lio-,,.!  to  nvnci,  upn.Mvs.Tv..  fnn.ls 
havr  never  l,a<I  t heir  ea,,ital   stock  re.lur,.,!  and  have 
never  i»asse(l  their  di vid.-iuls. 

If  his  choice  is  judicious,  the  hank  iuvstor  ,-m\ 
Mnd  plenty  of  stocks  ou  which  the  pavn.-ut  of  the 
senii-annual  dividend  is  as  nearly  sure  as  coinnien'ial 
ventures  well  can  he.  and  fmin  whi.di  he  is  likelv  to 
gain  in  the  add. -d  value,  ••the  unearu.d  nicrmieut  •• 
usually  aecruin;,^  to  the  sto.-k  of  a  \v,.||  mana-e.l 
hank,  as  it  ^vu\\^  older  and  shares  in  the  ad\ancu;u- 
l)r()si)erity  of  its  cuso.niers.  hi  iSlKMs;)].  >ix  ,,f  the 
hanks  have  paid  di\  idends  of  C  }),.r  cent.,  scv.n  of  7 
per  cent.,  two  of  7A  rei-cent..  nine  of  >  |„.r  c,.nt..  two 
of  K)  per  cent,  and  vo  .d'  1 -j  por  cmt .  Tlw  .li  udrnds 
paid  i)y  the  ju-incipal  hanks  in  the  Inst  fuui-  x^ars 
appear   in    Ajipendix    1 1. 

Partly  to  protect  the  sharejiolders  from  tluct  uat  ion. 
in  the  rate  of  dividends,  it  is  provided  i)ytli.'  llank 
Act  that  no  division  (d'  proijts  exccedinu' S  prrcen!. 
p<'r  annum  (d"  the  capital  stock  shall  ho  declared 
"ntil  the  rest  or  reser\e  fund  1  ••  smplns  "  in  the 
I'liited  Statesi  shall  e.pial  .'M  pei'  cent,  (d'  the  paid-up 
capital  of  the  l»ank.  I!\-  axoidin-'  (dianue-.  in  the 
dividend  rate,  this  aecinnul.il  ion  (d'  eaiiieil  |ir,,iit-, 
hd't  with  the  iiank  also  tend-  to  nnninii/e  ih..  fhiciu- 
ation  in  the  value  of  shares   thai    siinnilale-  -|Meiila- 


'H 


%y 


ri 


"^ ^ '         f'l'^'  f  iiiuiiliiui  iiiiikiiiij  S/fs/r),i,  isi*   isno 

"■"'"•  ''."l.l.li;,,,  l.ni.krrs  think  it  .Irsiml.Ir  to  |,i,,v.. 
III. Ml-   Mnrk    Ih.l.l    hy   illVrslors   /„,/,,/     //,/,,.    ..,,,,1    f..!'    Vciirs 

""""■  "''  ''"•'"  l'"^''  '•"ii,--r;.tiil;.tr.|  tli.'ir  slia roliold.Ts 
"I"'"  ''"■  'liiiiiiiiiti..(i  nf  s|M'ciil;iliv..  Ii,. I, linos. I  |t  js 
liiii-.llv  II, .,•,.-.>;,,•>  iM  a.l.l  that  tlic  ivsi  fiiniisli.-s  an 
•>''"li'i""iil  uiiaiMiit-c  to  th.'  ,Tr.lit..rs  of  a  hank; 
whih.  iiu.livi.lr.l  ii  isstrirtly  cui-im ,ra I ••  property:  its 
("xi-^trii,-,.  I,,, wis,,  ,|i^lilli^l|,•^  tlir  I ia hi  1  i t  v  , .f  st.M-k- 
'"•'•''■''^-  ;'l'li"ii-h  it  ,\nrs  fiiniish  til. .11,  with  a  suh- 
^''""'"'  I'l'-ircti,.!!  a-aiiisi  th,.  pussihility  ,.f  h.-in^,^ 
•'•'ill'''l  "II  l'"i'  further  c.iit  rihiit  i,ms. 

•'^"  •■'  i";itler,.f  f.ict.  i-,.>ts  ai-.'  much  hir--.-r  in  niaiiv 
'""'■'""■'■"  ''i'">  111''  propnrtiMii  iii,-iiti,.n.  ,1  in  the  liank 
•^'■'-  \".^  ii'l'lition  t.)  th.'  fun, I  is  onlinarily  n'lh'clcd 
'11  tli"piir.-,,f  th,'>t..ck.f..rth.'r,'st  iii<Mvas..stlir..arii. 
Ill;;-  p..\v.'r  ..f  th.'  hank  whi.-h  hohls  it.  It  c.sts  n.'ithcr 
'''^■''''■'"'^  II'"'  iiil'r.si.  an. I  nio>t  niima-vrs  an,|  pro- 
I'''""'"i""  Im|i,.v,.  that  hi-h.'r  ivfurns  aiv  ..htaiiii'd 
t'r-Mi  pi., tils  thus  un.listrihutr.l  than  .-nuid  h.-s.M'un'd 
''.^  |'iMpri,'t,,rs  if  th.'  fun. I  w,'r.'  .livi.l.-.l  ani.-n;;-  th.'ni. 
'I'h.'  I'.ank  .if  X,.w  Ilrunswi.'k.  t  ii.'r.'for.'.  lias  ac.-iini- 
iilat.-.i  a  r.st  .,f  Id;,  p..,-  ,.,.nt.  an. I  pays  a  \'>  p,.r 
'■'■"f'  'livi'hiMJ:  th.'  Dominion  Hank  has  ,.n..  of  Km) 
I'"!"  '•'■II'     "'■   il>   .-apital    an<l    pa\  s    I -j   p,.r    c'lit.:    tin- 

Hiink  of    Nova    Sc.tia  oi f  mi  j,..r  f.'nt.  and  j.avs  S 

l"i"  ''11'  • :  t  If  linnk  <  d'  Toronto  .)n.  .if  ',tii  p. 'r  rent .  and 
I'l.'^  I"  I"''  '•'■'"•  'I'h.'  Inip.rial  I'.ank.  th,-  i'.ank  of 
"•'iiiil'"ii.  Standar.l  Mank.  l'.aid<of  Ottawa.  I'.ank  ,d' 
-^'  'Ii'I'mI.    i;.iu(|ui'  (in    I'.iipi,'.    .M.)|s..ns"     I'.ank.    .M.-r- 

IiMli.' siiiiill  tniinlH.r  .,f  li;iiisi.'ti..n-  ill  sliaivs  iipl  i.'ntcl  l.y  th.. 
iii:nk..t  r..iM.rts,  it  is  [.nssil.]..  .,,  s,..-  ||,,w  .•,,iii  |,|..t..ly ,  ;,l  th..  pn's.-iit 
|hi;,.  '.;ink  st.,>'k  has  ].ass...l  int..  th..  hi'iids.if  ii.-i  niaii.-iil  li.,Mi.is. 
Ih.Ti'  IS  IK.  ht'ltcr  .)!■  str.iii:_'.T  .^v  i.UMi.'..  ..;'  the  .'i.iiti.h'ii.'.'  plHccl 
''.'  ''"•  I'lil'li''  ill  Ih.'  sMii.liiv  uf  Ih,'  hanks  than  its  a|.|.i».<'iati..n  ..f 
hank  shar.'s  as  in\  .•stMi..nts. 


M'lr 


l>llit|,'v    (,f     ^|i;||,.- 


l.-HitMx    l!.-,Mkin..   CnnilullV    ;n„l    ,1,,.    |',.n,,],.\    |:,„k 
I'av.'.,, .•!,;,  ,vst  .■Mualtn  :,..,„,•,.,. ,„..,,„„„,. 
|iai(l  ii|.  stucks. 

Too  s..rioiis|y  to  riuplij.s;/.,.  II,,.  lial 
''•'''''''•-intlM.('a,K..li;,„|„„k.ui||l„. ,.,„„,„.,  ,;,;,,„ 
"'istakr.      lMv-st..rs.  Mu,|,,„|.,.,, I,. ,,,,,, ,,„^.„.,.,„,,,, 

"^    ""•''"'•ilitv.  l.ul   in  ,v>,H.,.,    ,,.   ..|,.x..H  iu..lt,|,.    ,, 
l<'iist.o|  ll.os.,l,.s,Til..Mll,n.kiii.^.-a|,iMl„r,|„.  i,,,„„„ 
';•"•   ""■   I"'"'"'"l'ilit.v   of  n,.,.;,.,.!,    jin.ii,,;-    r,,r    „.    ,.„. 

'"••••onirMt    is   sn   ,-..nint,..    ., ,   .|i..|,,.    ,||;,t    tli,      ll;,l„l,lv    i. 

l"'"-f'<-"llv  .lis,vo,,nl...i.  TlH.sinrk  in  u.l!  nun,mv,i 
l>!«llks  iscstrm,,.,!  ,„i,.  .,f  11,..  s;,jV>l  .•,||,|  |„..,  ,.,";,,,. 
in.Tciai   iMVCstl,,,.,,!^   in    C,.,,,;,,];,.       Sinrks   M,  1,1    t,,  ih,-. 

I'i.y,.r  rroM.  -I  (..  r,  p.,- r..|,t ,   ,,„   ,|,..   ....M'kH    ^.■,lll.•  ..| 

Ills     pilirllHS.-.        It     Miav    1,..    Un,-tli     uhil,.^,.    ,„,,,,     ,|,;,t 

tiK-  lowest  yi..|,|  is  us„,-,||y  nl.tain,.,!  tn.„,  .i,Mk^  .-..lu- 
niaiidi.iw-  il„.  |,i,wl„.st  pivniiiii,,.  Th..  a.-.Mi!„,ih,i  i,.„ 
of  a  ivs)  makes  |.n.|H.ri\  i,,  ;,  i,;,,,];  .,„,,, .wh;,!  „„„•,. 
scciirt'.  and  llic  tin,i  .■Mal.lishni.'n!  ,,f  l.ank-^  u|,ic|, 
liavc  h.'.'ii  al)l.' toa.Mjnitv  Inr-v  r.sis  i;,ll,ri'  ii,,,MM\,.s 
the  prosprcts  of  iv-iilar  and  nnituim  c,i'  -la.lnallv 
rising- dividends,  (ttlic'  tact..r>  in  tli..  niaik.t  .>ti 
mate  <d'  a  stock  arc  ll,at  -rowl!,  el  a  i.ank">  -,,,,(1- 
will.  file  increase  of  its  civ.jii  and  the  i,.n,iai  i..ii  ,,f  a 
illrnlrii'  tor  all  .d'  \\lii(d,  time  and  -■,.,„!  i,,ana.i;e 
iiienf  are  iiecessarx  . 

These  coiisideralioiis  make  >liai'es  in  iiar!i(iilar 
l»aiiks  especiall.v  d.'siralde  in\ ,  sr  imnt-.  an, I  l,,.|p  to 
raise  their  price.  e\en  onsideralilv  aiH,\,.  thepoj,,! 
at  whieh  the  rest  woidd  h.'  lully  pro\  id,,!  i',,,.  jn  t),,. 
value  of  the  stock,  or  af  whi.-h  the  yichl  to  the 
inv<'sl<»r  would  he  as  lii;;h  as  tV,.m  (he  stock  of  hanks 
h'ss    favorald}    sitn;ite(|.       Shai'oholijrfs    e\,-lijsi\o|  \ 


1» 


,;  \ 


't 


1'  I 


44G  Tlir  Cni'iilinii    l!,(,il,'i,iii  S;i^lr,ii,   ISlT-lsIMt 

-"'  '■'"'  '"•'"•'''  "'raiivMi.-l,  inrivi„..„t  of  v;.lu.-:,ccni. 
'."-''"••'"-  ""•  l"'nn.l,.r  thrir  prnpiirinrv.  T,.  ivi.li/,. 
"•  '■">"•'•  tl'-'.^  i.my  s,.||  tl...irl,o|,|in.s.nr  in  cas..  ii  is 
•'     "''■''  '"  i>"''-"a>>..  til..  , •:,,,!(;, I. ,f  ,|,..  I.ank.  t  l,.-v  nuiv 

>.il    111..    I.rvv     >!,;,,•,.>    allnttr.l    In   H,,.,,,.         !t    is    provi.l.Ml 

l'.\  tlw  I'.ai.k  Ad  ih.-.t  l.ai.k  ^liivciors  shall  n..l  iv.,uir,. 
''•""•  Ik'I'Ists  t..  uhuin  alloti. wills  aiv  made,  a  rate  of 

I""'"i>'ni     n„     i.rw    >1, .•,!•..>     ...\Cr,.,liM-      t  lu'      iMTCrlita-C 

"""  '""■'"■  ''.^  '!"■  '••■St  "'f  th,.  hank  t..  its  capit".! 
^''"•'^■-  ''''"■  l"'l'l--i'  .L;;iiiis  ih,.  .Iitr..r..n(v  hrtwrcn  this 
1"''''«'  :'"i'l  l!i<'  higher  iiiarkn   pri.-c. 

II.  Thr  pnsiti(.n.,r  th..  I,nn;>,r,'r  has  ivcciv.'.!  seine 
■•'"'■"Ii""  in  th..  .Iis<.ussi..n  ..f  lai-v  hanks,  hrancli 
•"•iikiii.i;- ati.l  th..  Caiia.lian  syst.-ni  ..('  issiir.  I  have 
I'"'"'"!  "•"  <l"''-<'  iIk'  wid..  ami  th..n.ii-h  .listrihutioii 
"f  hankiiii;'  fa. .11111. .s.  th..  .-.lua  lizat  i..ii  <.f  disciiint 
iMt..v.  ;h,.  avMi.Jaii....  .,f  p.-ii,.,lical  tlnctuat h.ns  in  the 
'■"^'  "''  '"'"'s-  i>'"l  111"'  rxt.'nsivc  rontn.l  ..f  funds 
'  •^'■'■'•i-^'"'  '•>■  'li..  Caiia.lian  hanks  wIumvv.t  their 
esial.li>hiM..nts  aiv  in  ..p.-rat i..n.  A  .•..ns..(iu(.nce  .d" 
thi>  .•uiitr.)l.  \vhi..li  has  also  h...'.i  pr..vi.)usly  noted,  is 
""■  .il-ility  of  ..a.di  hank  t..  supply  \vhat.'V..r  may  he 
jiid-ed  Ih..  11. ..-.is  of  its  own  custom. .rs.  an.l  t.)  ..nf..rce 
''"'  '"'lie  'd"   ••.>n.'  eustoiiier.  .(ii.-  hank." 

Th..  natural,  .h'sirahl.-  an.l  usual  e.u-ollary  f..  this 
fill..  I-  th..  .stahlislniK.nt  ..f  conli.lent  iai  r..la't  i.>ns  hy 
Hi"  lion-,. \v,.|.  with  his  haiik..r.  as  a  <-.)n.liti(m  pivc.- 
d.'nt  to  ;,i,y  ;,.lvan.-...  Th.'  horn.wer  lays  h..fore  th.. 
hank.-r  the  stat..  ..f  his  husin..ss.  usually  hy  means. .f 
an  a.-tiial  halane..  sh....t:  h."  ...\plains  to  the  hanker 
th..  iMir|)os..  f.)r  whi.h  th..  a.lvanee  is  i.^piired.  and 
uiv-.s  su.di  j4-..neral  inf.)rmation  as  t.)  his  prospects. 
(■onditi..n  an.l  hiisiness  as  can  assist  the  lender  in 
.jud};in«;  as  to  the  expediency  of  urantin^^  the  amount 


Sinirrhnhh  r  ,n>,l  l:„rrnw.r  ./  Ihr  I  ;>,n„iu>i,   l!n„l,-      4  ,^ 


Jiskt'd    for,    (I 


ii'   siiiccrit  \    of   ti 


Ilull.s  ;|||(|    ill,.    |,f(.li,|l 


"■   III  ui'i  iw.'i' 


<'\|il;ili;i- 


•  Vs    ;i     full'.     1 


'I''    li|-"iliic|i\  it  y  (,t    III,    :i,| 


\  ,1  lice 


II'      lll-■(■||■^^i()ll     lit'     t 


H'     li;il;iiir 


lii'i't     i> 


lilllKi'l-    >-(Is  ;i    I  ill!  it 


III' 


l'<'<|llirr.l    ,.;irli    y,;,,..     ;|,|,|     ,1,,,     | 

••«TanN  ;i  |ji„.  n\  rn.ilii  ••  ,,,,  1,,  whirl,  |,,.  ..,..,,,,,  ,, 
supply  II,..  I.nni.wi.r  ;,s  ,„.,..U  ,,,.i„.  i„  ,,„.  ,.0,,,....  ,,, 
liiss,.nM.n-sn,M.n,ti,,ns.  T!,..  ovn. .,-.•. I  pu.Hl.ilii  ii.  .,| 
""•  •'..•!itiir>|,ip.  tl„.   r«^traiiil  m,  spiTiihiti,,,,   ..,11. 1  ll,r 

clirck  nil  ovi'i-  ,.x, ,, •,,,,!, ,„  uhirh  ,•;,,,  I,,.  .  ■  X  .  Tc  is.M  I  l,v 
<"lllti..us.  ri,r-.,.MIl,-  mill  s;,-|ri.„,s  nui,  ;,.  lK,|,k 
llUUlil--(.rs  1111.1. T  SU.'I,  .•i,|,,|i|i.,,l>.  |,;,v..lH,.n  ,v;i.,,m.m| 
•'Ut    to   tllr   .•..I.clllsi..il    tll;it    tllr  .•.,111, try   j,,    whirll    t||,.y 

aivtliun.ii-l.ly  n.iili/...,!  will  iiiji.y  p,-,,"..!  i.^.i!  imMiiinii'v 
'■'■"'"  ••oniiM.Tcial  cris..^.'  Tli..  .■xp..n..Mr..  nf  s.-ntlai.ij 
l'"i' ;•  I'Hio-  peri...!  ,.r  yars.  ami  .if  Caiiaila  hii.v  |,^::i. 
woiil.l  s.^riii  t.i  ciiiiliMii  III..  wriliT"s  vi..\vs.  At  any 
r;iti'  Itaiikcrs.l.i  imt  s..  often  ,|is.uv.T  that  ih.\  ••  ha\i. 
uii\viiriii,i.-ly  Imvii  hooiiiin-  a  .•.iih.T  |,,|.  hiiihlin-  a 
iiiill  ..!•  Iiclpiii^-  to  lloat  a  (•.•iii|.aii  v.'"- 

As  thr  ("aiia.liaii  c.irporat  ioii^  arc  priihiniiiianf  Iv 
coiimicrcial  and  industrial  i.aiik>.  w..  may  di-iv^arij. 

lor  th«"  ]. resent,  loaiiv  mad.'  on  tli..  .-.•. airily  of  I Is 

and  st.i.dcs.  temporary  ami  ims.Tiii fd  adxaiicis  !,. 
l>ersons  .d'  <;reat  w.^alth  and  hi-li  eivdit.  and  o.-ra- 
sioiial  siippli.'s  to  shaioho|.|..|>,  m,,,  ly.  r.  .j..  ,mi  iiiiin- 
d.irs.'il  ]ir.>iniss.>i'y  n.itis. 

I'.oriMWers  in  general,  who.,.  [mi!|io->,.>  aiv  apj  iMvrd 
liy  the  hanks.  s(.(.k  advanei's  to  anti.'ipati.  returns 
Iroiii  sales  of  eomin.iditi..s  already  .•..mind,, I.  i,, 
inak...  to  nmv..  .»!•  to  ..arrx   .omni.idii  ii.>  f.w  ih,.  |,|||-. 


n 

n 


■li- 
ft 


'('(.  S,,,iu'rs,  "'liii.  Si-,,|,.li    |;aiiks  ami  S_v>t,.|i]  n(  I>siu..''  pp.  !|:;- 
I II,  nil  S...,ilaii.l'H  rscapf.  t'ldiii  .rises. 

I!.  K.    Walker,   "('ana.lian    i'-ankni^r,"   ■/■'"ru'l  0/  (/,,    Cnuf/iitK 
llankiis'  Association.  \.il.  i,  p.  Ji'. 


•'•^  '/''"'  ('''11,1,1  ill II  li,i)ik-iiiii  Siislnn,  1M;-I,s!tu 

l><>s.- (.f  scllino-  th.in.  Ill  nili.T  wmds.  I.;iiiks  ;is  ji 
nilf  will  <'.\lcii(l  ccMJii  niily  wlicii  flier,,  is  ;i  ])rns|trcl 
llial  the  Use  ol  the  inlvjiiicc  will  prdvidc  the  nicMiis 
f'lr  its  piiyiiirin.  (  Mhcrwis.'  lliry  incur  losses  and 
'•"■l<  >'|'^.  I'  i^  tdrtlirr  a  Well  <>iiil.lislie(|  iiriiifipl.- 
ol'  ('aiiailijin  iMactice  thai  aiKanres  shall  Im-  secured. 

Those  who  Imuiow  to  anticipate   n'tuni-^   rioni  con 
eluded  -^ales   ai'e    1  ecli  n  ii  ,i  I  |y  the    discmint    cusinineis 
of   the    hanks.      The   security    they    ;;ive    i>    the   I  \vo- 
iKiine  pa|.e|-  |uii(dia>ed  h\    the    hank.  /'.  c.  |.ioniis>ory 
iiMtes    iiehirsed    hy    the    payee,    time    acceptances   of 
d'd.toi's  t'or  which  I  he  dra  w<-e  is  st  ill  liahle.  or  ind(U-sei| 
liilU  .,)•  e\(dian;;-e.      The  hank    thus   has  t  w..  o,, ;,,.;,,,. 
i«'rs  ..r   i.'pax  ineiit.  the   ..n.'  directly  liahl.-.  tli.    other 
l'\    wa\  of  recourse:  ami  liotli  coiiimei<ial  houses  win 
mu.-i  met  >U(  h  ol)li;j;ations  in  mdef       preser\e  their 
s(dveiicy.      Allot  her  class  of  discount    customers  are 
tai'iiier-.    who    Usually    hoiiow    on    ih<ir    promiss(U'\ 
notes,  indorsed  hy  om- or  more  of   their   iiei<;hhors. 

I't  isoiis  making-  coniniodities  lor  sale  are  iisnallv 
expected  to  SI  •cure  t  he  hanks  u  lii(li  assist  them  in  the 
method  provided  hy  those  clauses  of  the  r.ank  .\c' 
of  |Mt(i  wliich  relate  to  tin-  security  yiven  h.\  whole 
sale  manufacturers,  millers,  distillers,  packers, 
•'t'".  [\'iii,'  :x2.)  The  security  eiven  hy  those 
eii<;ai;-ed  in  shipping-  -o(»ds  fo  market  or  holdin;;- 
ilieiii  for  the  jmrpose  ,d'  sal-  .  is  likewise,  in  man\ 
cases,  the  material  seciirit\  of  valiiahle  k<'""1s.  ami 
the  rules  for  its  assi^^nment  are  provided  hy  the 
i5ank  Act  in  the  clauses  dealin--  with  warehouse 
receipts,  hills  of  lailiii-'.  specilicat i<ms  of  timhcr  and 
tile  like.  I  iider  I  he  same  catej,^i»r\  (of  persons  cai"- 
ryini^- K(""l^  >vilii  intent  to  sell  ihenn.  conie  many 
wiiolesale    iiouses.    importers,    exporters,    dealers   in 


Sh,irrhul<l,r  ,f,nl  Harrow, ,' uf  ij,,   coiailKin  lianh 


449 


«■•■'"''■•■''  ">.Tcli;,iHlis..  an. I  a  Inr-,.  varirfy  ,,r  ,viail 
"■•■"''■'■^.      ll    i^    iiMiallx     iiccrs.ary  |,,    niv    lip.    I.anic 

<''»'li>t«Tiil  s.-.aiiity.  if  it  rxiM^.,  I. lit  uh.  I      •ollalnal 

'"^  '"  liiiiid,  Hm'    iM.iidw.  |..  acronliii-   t..   tlif  1..  -t   |,ia(- 

''•■'••    '^    ••'•., Iliiv.l    |„    Til      Misl,    til..     l„,|,.i    ,,1     M|||,.f    I-.'SIM.II- 

sil)l.'  |.aili.>.  t,,  s.Miiiv  the  (■.•liaviiiriit  ..f  lijs  Lank.-i-. 
'"  ""•'''  •■■-x'iK'r.  all  llh'  !i-aii>a.'tini,>  iihih  i,  ,||r,|  in 
til"  paia-iapli  ar.'  I. .an-,  hiii  m  tuim  tli,'.  t'iv(,nciit  I  v 
npiMiir  as  (iisi^oimi-.  (  aiiailian  Laiikir,  [.i.Trr  fn 
liiakc  ailvaiirrs  un  ip-MiiaM..  i  mm  luinciii -,,  latlicr 
(lian  (ivcnlial'ts,  even  ili,,ii-|,  th,.  |,i,.iiiis,-,.|v  imt,. 
liikfii  tioiii  til.,  cii-toiii..!  Imi-  Iimm^  i-  ii.dliin-'  iin>i.. 
than  an  rvidciir..  uf  tli.    h,  nk's  claiiii^. 

I  lif  fill<'  as  to  {(iicwals  III)  |ni|M(.r  sinus  tin'  -aiiir 
-ini|.licil\  a-  wlicii  I  |'|i.  !•  Caiiada  wa^^  a  s.'paratcjv 
;;«'Vriii..(!  |,f,,\  ill,.,..  WIp  ilicr  a  ivip.wal  i-^  p.  rinitrcl 
now  (|(.|M.|p|>  upon  tip'  piiiposc  to|.  w  lii<.|:  tlh  a(i\  ani'f 
\v;is  inatlo  and  tip'  pi.|i  iipni  ••ii-cuni>iaiicr-  rioducp 
iKiy.'is  and  ^laiii  shipper-  ,,|.  ,,t|p.rs  tor  •Ahoiii  llic 
season  o|'  opriat  ioii^  and  -airs  i^  Ipiirt".  woiiM  liai'diy 
lio  alli  iwrd  ii  iP'W  a  U. 

( 'nslonicrs  olita  iiiiiin  t  lp.  di>coiiiit  ol'  papfv  pa  \  aide 
at  plai'cs  otlnr  tiiaii  llio  pla.-o  of  discoiiiit.  arc  >iil»jc(t 
to  an  addii  ioiia  I  cliari;''  U^v  tip.  pxpi'iiso  (d'  a,i;"i'nc\ 
and  rollfct  ion  not  p. \  cci  d  i  iil;'  oiiclia  i  f  of  one  ]m!'  cnit .. 
^nIi'Mi  iIp'  paprr  i-  payal.lt.  at  tli.  oflicc  o|"  a  Lank 
(dlnr  than  tlif  on.  di>connt  ini;'.  W  lioii  tli..  pap.  r  is 
imyaiilo  at  anotlnr  .dlii'.  ol'  ihc  saiiif  l.ank.  tip- 
•  diarj^c  pri'ini!  Nil  l.y  the  I'.aiik  Act.  ulii.li  nia_\  iP-t 
exceed  one  lialf  of  one  p.'r  ceni.  for  paper  jiayalde  in 
ninety  days  or  ove,  is  proportionally  less  for  sli.irt-  r 
term  advjiiices.  Tlp.-e  provi>ioiis.  intended  toa~-ure 
to  licinks  in  certain  cases  soniewliat  more  than  the 
interest    at    seven    per  ctiit.  pt.'r  annum  I  Im'V  are  jier- 

2n 


•IJO  I'/ir  Ciniifih'iti   /lilii/>-iiii/  Si/s/riil,    |sl!-lS;t() 


mil  It'll  Id  (It'll  ucl  ;il  I  III'  I  iiiif  111'  tli>riiimt  iiii;'  or  ifcii\  t'p 
l>y  suit .  iii'c  ihil  itf  |i:iit  iriihir  iiii|i')ri;iiiiT  iiinlri'  ihr 
niliiii;"  I'liinlil  iniiv.  'I'lic  I'jiti'  nl'  ili^coiiiil  i>ii  tii'sl  chiss 
(•i>linut'|'ci;il  |iii|M'i'  I  Iocs  iiiil  llsiuill  V  I'M'i'i'il  I'l  '.  piT  ci'iil . 
in  ;ni\   piirl  nl'  ('iiil-iiIm  cxcfpl   r.i-iii>li  ( 'nluiiilMa. 

The  Itni'i'ou  I'l'  wlinsc  ;|('c<>UllI  is  •  •  \  ;i  1 1 1;|  1  il » '" "  is  likely 
liisirill't'  f;i  \  iifii  i»lt'  I'iilfs  oil  till-  inliiit  ioli.'il  clliirj^'t'S 
for  ;in<'iii'y.  IT.  tor  i-xniiiiilf.  Iiiii-ii.illv  kri'|»  n  l;ir;;'c 
liiil.iiifi'  ;it  liis  ci't'dit,  ir  ho  lorcivo-^  or  iisos  ;i  liii'i^r 
aiiioiiiil  ot'  cM'liaiint'  ill  liis  liii>iiit"^s  ami  sclU  or  oli- 
Iaiii->  It  llii'oii^li  lii-^  liaiik.  or  it',  a^aiii.  Iio  usos  t|iiaii- 
litifs  ot  [tank  iioios  in  his  dishiirsi'mrnt >.  llic  hank 
which  ha^  iho  acroiint  can  all'ord  to  iiorfoi'in  -^(•l'\  icos 
tor  tiim  at  loucr  rales  than  for  those  whose  custom 
o]ieii>  iio  such  I  mil  lent  a  I  sourrcs  of  )irotit .  lie  is  likely 
to  i»o  iicconli'd  Mtiiiewhat  -ri'Mter  facilities  in  the 
matter  of  loaii->.  What  e\tra  ;;aiii  the  hanks  ohtain 
in  one  way.  ioni|iet  iiioii  ^iiierally  n»nii»els  ihem  (•> 
return    in   aiioihor. 

A  i|iie>tion  as  to  the  horrowor's  |)o>itioii  which  we 
ha\o  yet  to  ixamiiie.  is  iho  treatment  he  receives 
fi'oiii  his  hank  when  the  money  niarket  tightens,  the 
linancial    hori/oii    hccoiin's  ohsciireil   and   every   one 

heuills  II'  pre  pa  re  for  I  rollhle.      Is  the  hol'l'oWer  allowed 

to  carry  rhroiiL;ii  the  iiiiderIakiii,L;s  he^^iin  on  an  under 
-taiidinu'  as  to  lo;iii>  r  <  h'  i--  he  sacriliccd  to  the  e\i- 
L;t'iicii">  of  the  time  and  tOi'ei'd  to  iiaii/.e  at  a  lo>>.  in 
order  to  pay  a  deht  :  What  is  the  iiieanin,n'  of  the 
haiiker"^  proposal  -'to  take  care  of  Jiis  ciistoiners!' 
For  an  an-wer.  wi-  need  only  to  rrcall  the  sprin;^"  and 
summer  of    IMKI. 

Ill  the  tii'st  half  id'  that  >ear  many  an  a^eiit  of  lirst 
rate  American  houses,  prox  ided  with  uiie.xcept  ioiiahle 
si'cnrities.  idVerine  papei-  at  all  the  way  from  S  to    II 


!"''■  '■''"'•■  iiii<l  I'lMiiii^ii,;^-  |..Trii;iiiciit  cii^lMiii  if  iimiic- 
•''•"'■    " '^    ^^''l'''    ^U|.|.li.M|.    \v;is    M.|it    ;i\V;iv     l.r--iiii.- 

*"''"'"  •""•  <';iii;i'liim  luiik  i..  ;,,,.,t  lin-.      I'.nt  ..sm   t||,.n 

('.■lllinllilll    Cllslonn.rs   i^'    llirs,      l,;|llU     ;.,.1     ;hl  \  ;,||,rs,    if 

""'>    ' I''l  lli-'iii  I'ov  l.';;itirii,iif   |.iii|.(. ■>.•>.  up   I,,   tl,,. 

full  jmiuniil^  .,f  tli.'ir  nvilns.  mi, I  .n  ,;,i.>  n,.  hi-lirr 
tliiiii  scvni  |,rr  ,•,1,1.  'I'll,.  I,;iiik.  |i;i,|  t,,  i|,ii„„i  innrt. 
'•'<"'   >'.^."<i(».(Mi(i   t.,    (I..    II.    II, ,\    |i;i,|    I,,   iviliic,.   t|„.i,. 

Alll.'j-iiMll    li.llilMco   ;||   ;|    (m,,.    w  1 1  r|  |    |||.'    p.  d  || ,  ■  |  |,  ,|,    Was 

nil. St  (lilliciilt  and  iiiiprotitalil.'.  liny  Inst  >at'.'  cliaiiccs 
'"'■  l''U'li  tlinii);li  li'iii|M.rai_v  i.fMlit.  I, III  ilicy  were 
iliidcr  oldi^-atiMji  i,,  >ii|,|.nit  tlnMr  ciixiniuri-s  and 
they  did  sii|.].nrl  tlimi.  Cnnciii  ln;iiis  wrrr  incrfasfd 
l)\'  over  rlrvni  millions  iMiwtMii  ||i,.  hi. I  ,lay  <.!'  .Ian- 
ii.'ii-y  and  tlic  liist  ..f  .Inly,  alllmii-li  lid  wrcn  th.'  last 
ol'.Iiiniiaryand  llic  la>i  nf  .\  ii-ii>t.  I,aiv|y  halfa  niiilioii 
was  inldt'd  til  circiilalinii.  and  dt'|i,isit-  oil  d,  niaiid  \vi  re 
red  net 'd  liy  nmrr  t  lian  ^i.\  niilli.iiis.  I  ii  l  lie  talilr  licjow 
{ippcar  till-  rlian-('>  ccciiirini;  in  th,'  -innitii-aiit  ili'nis 
<»l  tlir  liaiilc  >!ati'infiil.  inninl,  |,\  nmntli.  t'l'nn,  .laiiii- 
iii-y  til  I  >ccrinlifi'.'  Nni  hii,--  lidli'i'  (■(Ui'd  iilii,->trati' 
1 


1 


a  ii 


{                   i                    .  .  .  ;                   .                T             ,                   ;  . 

■lull.  .V^.^n  n:,i.v.i  lii-.'.in;  -I   (.Km  |..,r,i,i;,  -a.il.'ri  I, I.!-;  II.im;  Is.^.ti  ['.>;  ■Sn) 

I'i'li..  ;i;.',!iTH  r,i;.y.»j  iii.'i.iiii  -;  (.:(iii  i;i.?,i|  -.'i.;;!!;  i  ivj  it,;p,i  i'.i,4.>i  i!i;  ;ii!i 

Mm-.  :;:i,;Mii  ii(.,viii  im  ;(ni  i:;;  i,,  a-,'  i;,>:,;  •.•ii,.v;',i      .;;"p  ii.:;!i.",  i;.i,.Vi  :.'o(.',iii;t 

.\|ir.  :w,ij:i;i  (1i.."iI:.'  liU -.'in  i:i!i  ti.ioi  i:i,:i;->  i:,ir..'.  •.'.:i-.'i  iiiim;  iti.iii'i  ;.'iiii,:s'.i 

Mii.v  :!l,ii-.';  iii>.vi  lii:),.V>*l  ir,:,  .•,,:,iit  \:i,-s.vi  r,-M  i  i-;  It.;-:  I'l-.'li  :.'ii;.r.x". 

.liiiif  :;;i  4k;  iit.'.i;.'i  l(i"i,s4i  :.'iii  i.:.M  i>,.m;  \;  .m  i,;,-:  ii.jni  ■  ksmi  •.'ip>,;!.:i 

.lul.v  :'c;.:i::\  i,i,:,i;:;  iiin,:iii;i  |-.'t  i.i^«i  iii'.'ii."i  ri.diii  .i.-ui  i'iomi  i.".,iii  •.'(»;. '.i:;7 

Aiif^.  :i;i,;«iK  r,i,i:i;  m:. iil."i  iiiii  ."i.:i;i.»  .•.'ii.i.'m  |;;,;,n'.'  :i,:i(,i  I."i.:m7  li.:i'.i.-  .'Hi.ii.'iii 

Sept..'  Xi.l. •-'.><  Ill  ■.'(:,  llll.illil  '.•:.'!  .V 11!.'  •.'li-.'ll  lli.l.M  l.'l.l  i  i 'iii:.'  Il.ni'il  •.'hI.ImI 

iii't   .  :k;,!iiitl  II'.' .va  in.!..-,';;  I?,i  l.inii,  -.'ii.v-s  1 1  viii  :(i.i|s  !."i.HH  il,r,-l  i  '.'iit.-.'il 

.\c.\  :i.'i.l;;ii  i;:.','i:.'i;  lui.iii  |:ii   i  nti  .(i.imM  li,.-.'l'.'  I  r.'i  in  M^'  I  l.ir.:.  I  •.•H|,'.i:»i 

l»c't'..  ■H.W'^  ii:.',.V.i|  lii;.;>:j  liui  I.I.M  .-.■n.iir''  l- :.':.'■'  :l,'i4ii  ]<•■'',■'>  ll'.'.lil  i  •.'iiii,.i'.iT 


H 


H 


il 


>k 


\v^ 


■f  , 


Abi  Thf  Cin/ihliini  /Ulii/riin/  S//.y/cui.  1}S1T-181H) 

tho  iirotcrt  ioii  ell joycil  l»y  tlic  woi'tliy  customer  midrr 
tlic  C'Mn;iili;iii  s\>triii  nl'  liiiiikinj^'.  In  t'lilicnl  jicriods 
his  accoimiitiiliii  idii  is  ii<.t  iiillilcssly  ciiitnilctl.  nor 
thr  ]iri('i'  of   it  cxccs^i vfiy  auniiu-iitcd. 


.i'f'i'J. r  III-;    I !  I   s  I  N  |;ss  ('  I  •  ( •  \  N  A  l>  i  \  N    MASKS 

III  H'\  icwiiin-  llic  important  oi-  interesting'  I'arts 
leiatin.;"  to  note  linMei's.  depositors  and  borrowers 
under  tile  Lankinn'  sy--tein  of  ("anaila.in  diseussin;j^ 
reMi\f>.  iii'^prct  ion  and  oilier  points.  many(d'  the 
salient  I'cai  ures  ,,(■  the  misccllaiieons  liankinj;  lnisi- 
ue^s  carried  on  wit  h  t  lie  ( 'anadian  puhlic  ha  \e  already 
l>ern  more  or  lis>  tiiliy  explained.  A  mmmmkI  expla- 
nation in  thi-  eojiiieciioii  Would  he  repetition  i'roin  a 
(iilVereiii  point  of  view  rather  than  the  I'ormnlatioii 
t)t"  Uew  material.  'The  pro|)oi'l  ions  oi'  \ariuus  items 
in  thoi  r  ;i<-ot  s  and  liahilil  ie->  to  i  heir  capital  stocks, 
and  siiuilrx  othor  t'aet>  re^^peet  in;^'  the  several  iiaiiks. 
nppea r  in  .\  ppendi x   II. 

Asidi'.  liowf\cr.  from  those  conim<uily  denoted  hy 
discount,  dipo-it  and  i>su'-.  the  hiisincss  ot'  the  ('ana- 
dian  hanks  includes  other  types  of  transactions.  Tlu' 
Canadian  eharteicd  hanks  pertorm  nearly  every 
variety  ot'  the  mercantile  hankin;.;'  ser\  ice>  recjuired 
\vliere\ei-  there  is  siithcieiit  hiisincss  to  suppoi't  an 
a;;eni-y  or  hrancli.  <^>uite  a'!  the  trade  ilie\  (\t>  not 
enjoy.  In  eoHe't  inn"  deposits,  r.  I/.,  they  have  as 
coiujiet  itoi  s  hotli  the  L;d\ernment  sa\in;4s  hanks  and 
the  loan.  mort;4a;4e  and  investment  companies,  as 
Well  as  sonn-  hiiildin*;'  societies  the  latter  hein<^ 
(•orp(u-at  ioiis  that  loan  money  on  real  estate  -  most  of 
whom  receive  de])osits  at  interest.  There  are  also  a 
nuinher   <d'    private     hankers    who    receive    (h'posits. 


Thf  Jhi.>niiss  of  Ciiiuidtun  lln)ih:<  .i:,3 


ir 


•  •"ii.liict  ;i  l(.;.iiiii,--  l.ii-iii.---.    in    pl.ic.s  w  |i.|-,.  m,  .h; 
t<'r.Ml  haiik  iscstal.li:>li.'.|.  ,iii,|   lr.,|ii,.|il  I  \  placr  iiimii,._v 

cl^cwllcfc.     ill     sllrll     aiiK.lllits   nl'    oil     viirli     ^ccliril.V    as 

Avr.iil.i  niakr  111.'   traii-aclinii    iiiiar,r|Mal>i.'  i..  a  .hai-. 
tiTcd  i)aiik. 

liiil  (it  iiicdi'iHiralrd  va\  Jnus  l.aiiks.  siidi  a-  nii.-  tiii.ls 
111  iiliiiost  any  A  iiiriican  v\\\  ,^\  iw.iuv  lliMii^aiid  in- 
lialiilaiits.  tlicrc  arc  iiui  hkhc  than  livr  in  tin  wlmlc 
(•(iiiiilry.  With  two  cxccpiioas  th.sc  arr  in  th.'  ritics 
"f  .Muiiti-cal  and  Toronto.  •• 'I  lio  Sa  \  in-'^  I'.ank  !».■- 
]t;iftnifnt  ■■  usually  alta.'hi'd  to  thr  hiandi  oilic,  s  of 
(duii'Icrt'd  iiaiiks  i'onii->  a  placi'  of  sat.iy  lor  tho  --iiaff 
*'"'■" I ii.n's  ot  flic  |ico|i|c.  and  is  now  o|M>i!c(|  in  inaiiv 
ii  locality  w  hcic  a  iiiccc   savin-^s    hank    coiild    not  ckc 

on!  I'xistcncc.      The  jiracti. f   hank-    in   <oin|iiii  in;;' 

interest  liiMni  deposits  \ariev  m  dillei-ent  pai'ls  of  th,. 
1  )oniiiiioii :  in  some  di-.tiict--  inieresi  is  paid  lioin  the 
diiv  of  dejiosit  to  the  da\  of  w  it  lidra  wal :  in  otlh'i's. 
it  is  coiiipiitcd  oil  the  niininiiiiii  iiioni!i|\  halancc. 
Ill  oil  ^h  when  tlii--  iv  I  he  ca-^e  the  r.ite  adou  ,■,!  i-.  ..fieii 
soiiu'whal  liii:lier  than  when  inlcre^i  i-  paid  oii  tli" 
daily  halaiicc.  What  priipoiiM,n  the  ina-s  o|'  small 
aciMimiilat  ioiis  thus  ae.piired   and  c\eninally  dexdicd 

lo    productive   purpose. .    heai--    to    the    total     deposits  at 

iiiti'i'est  with  the  eharleied  hank'-,  t  here  aic  no  ulli- 
cial    Stat  ist  ics  to  iiidieal«'. 

In  addit  ion  lo  (  'anadia  n  colleei  ioii>  and  i  ran  ^ai't  ions 
in  ilomestic  e\rliaiiL;e.  many  of   the  lank--  nndeitakc 

tlie    l|e;;-ot  iat  loll    o|'    llinilieipal    d<d Illli's.    cily    lioiids, 

and  occasionally  proxincial  secniiiio.  'Ilie\  do  not 
act  as  lifokers.  Itiit    1>U'.    the  si.cii'itiev  oii:  ii'_;hi .  after 

tile    minilerof    specialized     holld    dealer^    111    llle    I'lliled 

States.  Soiiie  hanks  i--siie  coiMincrei,!  |  ci .  dil  -  a  \  ,ii!a- 
al)lc    in    whatever    parts  (.f   the    world    the    impoiicrs 


(  - 


It 


4."il  I'Jir  ('(Diiiiliini   Hiiiik 


iihi  Si/si,i,i,  isiT-isno 


ainl    tiM'Irrs    iuimni;-    thcii'    ciistoiiici-s    arc    likdv    ti 


M*i 


n'i|iiii'f    Itiihl 


'II 


li\'     also     issue     t  ra  veins'      ei'eillts 


ami  circiilai  notes,  these  also  heini;-  a\ailaltle  in  an_\- 
jtai't  <>r  the  \v.)i-|i|  with  which  a  hanUiii^-  cni  re^jiniid- 
cnce  can  he  est  a  hi  ishcil.  Nn|  ;i!|  the  ( 'ana<lian  hank.s 
cny-aue  in  (his  class. .f  hnsincss:  rmi  all  the  hanksafc 
exam  I  lies  et'  what  ma  \  he  t<  niieil  t  hi'  ( "anailian  t  \  pc. 
There  are  still  s.inie  hanks,  tin  in  all.  pcrliap^.  w  Imse 
interest  s  ;i  ie  at  mesi  hut  -ect  in  ua  I .  a  iH  I  whiise  hnsi- 
ncss is  chiell  \  contiueil  ti>  ili--ciiii  nt .  i|eiii)--it .  issue  and 
such  ti-ansact  inns  in  ilnniestic  exchange  as  nia\  he 
rei|uire(l  within  the  sections  whefc  the  hanks  wmk. 
'  he  ty|iical  (  'anmlian  hank.  howe\ cr.  is  a  cmiiorat ion 
conti-ollcil  I'l'iini  one  <.r  the  centers  ;inil  ca|iitali/.cu 
foe  a  mi  I  lieu  or  more,  which 
numher  o|  [niints  in  one  or  more  |iro\  inccs.  its  corres- 
[londent-  in  Lnnden.  I'".n;.;land.  in  nnnieroiis  cities  of 
the    Iniied    >tate>.    and    at    ditl'erent     l-air< 


as    Its    hianches   at    a 


)|)ean   and 

(>rieiital  marls,  and  c.tnsc(|ueiit  Iv  the  facilities  for 
jiractically  any  kind  of  safe  transaction  ih:  may  h»' 
oll"e|-ed   It. 

l''our  of   the    hanks    ha\c   agencies  of   their  own  in 


the    cit  \      of     .\eW     \  (Ilk 


lie    a    hranch    at     (  'hicayc 


another    an    ,ii;ency    tlnre    as    well    as    at     Kin;4stoii. 
.la maica.  and  allot  her  vt  ill.  hranchi  s  in  ^aii  l''raiicisco. 

Portland.    'raci,ni;|    ;|lld     .'^eatlle.'         W   ith    the    eXCe|>ti(i|l 

of   the  aL^eiicies    ill    .\'e\\     ^'M|•k,  tile  .\niericaii  ai^i'iits 

arc   ciina;^!  d    in    a    miscellaneous    hankinn-    hnsincss. 

the   ainounl   ot'    which    cannot     he    inferred    from    the 

hank  siatenietii .  he  cause  the  parent  ha  iik  s  a  re  reipi  ircd 

'I'lir  rmiik  I.I  liiitisli  <  ■ipluiiiM,i.  I'oiitic.llc.i.  like  tin-  i'.i  nk  I'l 
Itriti.-ih  N'miiIi  .\iiiiric-;i,  l.y  a  ' ''iirt  c'f  DitcrtMi*  >iuiM'.'  in  LumiImh. 
r.<itli  ail'  iiistiliiti'iii-  aciiiiu  ninlrr  imvuI  cliarUM-,  lnit  .-iilniM't  t"  tlic 
rf'^'iilali'Pii  "T  till' r.iiiailiaii  r.irii.iiin'ni.  I'Im'  laiiiT  l'anl>  al.-n  has 
ail  aj:i  IMS'  ;■.'  saii  !•  lauri.sc 


77/'   IlKsiiti'sx  of  (  HiKiiliini  HiOiks 


}:.i) 


to  i-('|Hiri  merely  tin-  Imhani  s  {\\\i'  lt\  ;ii;ciits.  .•lunicics 
ofollii'i'  hanks  ill  fdrcinii  ('(iiiiit rirv. 

NfW  ^■(l|■k  city  is  iix-n  hy  all  tln>  lui';;Tr  ( 'aiiailiaii 
Itiiiiks  as  a  |ilact'  to  keep  parts  of  tlicir  rt'snxcs. 
\N  lu'ii  tile  l»aiik  lias  no  aj^ciicy  df  its  own  I  1m •!•<>.  it  can 
an'an^c  witii  sonic  local  hank  to  loan  its  inoiuvs  at 
<'J'II-  <»'■  il  I'itii  t;t't  a  cciMaiii  iiilifcst  hy  deposit  in;;-  a 
halaiicc  with  one  (.1'  the  local  hanks.  The  l)alaiicc 
may  then  he  used  as  a  hasis  for  (IrawiiiL;'  New  ^d^k 
<'.\clian^-e.  or  as  a  means  of  ]iurchasin,t;-  iiei'ded  stei'- 
iin;;- e\(lian;4-e  when  the  New  ^■ork  market  is  more 
lavoiahlc  tlian  the  Canailian.  or  as  a  means  to  pur- 
cliase  specie  when  it  is  necessary  to  import  eo|,i  to 
Canada.  I'.anks  which  had  Iheirown  estalilishnieiits 
at  New  \'ork  in  1^7:!.  used  their  agents  for  the  e:,;- 
ploymeiit  of  port  ions  of  their  fmn  Is  until  reipiired  else- 
where. A II  au'eiit  employed  mone\  form iiii,^  pun  (d' 
tile  i^eiieral  fund  reserved  l»y  his  hank'  to  meet  shortly 
niatiiriii;;'  or  iiiie.xpected  liahilitii's.  partly  on  loans 
maturing'  on  demand,  for  which  no  vouchers  were 
received  (call  loans  on  honds  and  stocks),  and  pai-tly 
in  loans  payahli'  at  specitied  times,  for  which  he 
i'ecei\-ed  notes,  drafts  and  otiiei' coiimiercial  iiajier.' 
Kveii  then  the  r.ank  of  llritish  North  America  and 
the  r.ank  (d'  Montreal  had  Ion;;-  heeii  two  el'  the  -diNe 
f^reat   names"  of  the  sterlin;^:  e.\chaii;;e  market. 

\\  present  the  New  N  oik  (dlices  very  seldom  loan 
oil  time.  thoii;;li  when  n'ood  rates  are  (dfeied  .nid  no 
fiiiiils  are  reipiired.  either  in  ('aiiada  or  ainoad.  they 
are  wiiliii;;-  to  make  an  occasiiiiial  time  loan.  I'aii 
their  principal  hiisiiiess  is  loaniiiL;'  at  I'all  on  ne^niia- 
Ide  seciiril  ies  t<i  sto(dc  hi'cdceis  and  othir:«.  tlie  piir- 
(diase    and    sale    ^'(    slerliii;^'    e.\cliaii;;e.    and    niakiii'j,' 

''liu'  I'lMiplf.  /  r  itL.  r.ank  nt'  i;iiti-li  Nuitii  Aincrica  -  v  Cnin'is  m| 
'I'iixcx,  »'tc.  il''',":'.!,  New  Vurl;  suiircinc  CdMit  Ufpoi t- CI'  Mini  C,\.  p. 
).:'.n. 


1  ' 


I  4 


i. 


4:m;         riir  (•((),,(, {iiiii  j;,'/i/,-iN'i  Si/s/r„i,  isiT-isoo 


t r;iii«<ft'i'>  of  moiir;,  liv  r;ililc.  Their  |)I■i^i^ll  ciirrcs- 
Jh  iiiilciii -,.  Ill  i\\(,  call's.  iiia\  l>r  llicir  nwii  I^hihIoh 
otlici's.  iiiil  iinih  t'ui'  tlit'M'  aini  tlif  oilier  liaiiU.--  ;ii'e 
usually  Mieli  iu^l  il  lit  ieii.s  a.>  the  ( 'lydesdiile  I'.aiik. 
I.iiniie.l.  ilic  I'.arik  nf  Sect  land,  t  lie  London  iind  W'est- 
iiiiii>ier  liaiik.  llie  I  iiImii  I'.aiiU  id'  London,  the  hank- 
in  i;  house  of  .Mes>rs.  (  i  ly  II  iV  (  o..  or  t  he  11  lit  ish  Linen 
('oni|iaiiy  Hank.  ( 'or!'es|ioiident  s  elsewhere  are  el" 
e(|iial  >tanilinL;'.  so  that  u  here\  er  it  i--  itayahle.  the 
hill  lira  w  n  i>\  a  ( 'anadian  hank  is  cd'  the  hii;hesi  class. 

The     .\e\\      N  oik     a.nellcie>    do     Hot      receive    deposits    or 

discoiinl  notes.  Tiny  ha\i'  no  coiisidera  hie  liahilities 
and  ]irai'!  ieallx  the  \\h<de  aniouni  ,<\  their  liinds  is 
a  I  \va\  s   a  \  aila  Ide. 

W  hal  n-^''  i>  occa>ionall\  made  id  this  ri->er\c  may 
hi  illiisl  rat  III  lis  the  action  ol'  the  hanks  ilnriiiL;  the 
<  anadian    slriimeiicy    oT   earl\'    l>7."i.    and    still    more 

t;|-.lldlliM  II  \     hy    the   llel    decrease    ot'    tile     ■d'ofei^^n    hal 

anees"  iwliK  h  really  mean.  I'or  the  nio'-t  ]>art.  Anier- 
ie;  n  halainoi,  li\  o\  er  ei;^iit  million  ihillar>  hit  u  eeii 
tile  la-t  ol'  ,1a  11  nary  and  the  last  of  .\n,i;ii>t.  IS'.Ki. 
\  <-\  the  ad\a!i!a,ne  n|  their  e-ta  hi  ivhiiieiit  ■;  in  the 
I'liiled  Slates  is  Hot  hy  ;iiiy  means  coiitined  to  tli(> 
("anadian  l)ank>.  in  .\e\\  \  ork.  the  >e||er>  ,>(  c.iiton 
hill>.    wiiii     whom    their    i  raiisaci  imis    are   eiiorinon,-, 

donhtlev>    I'eel    liial    tile    hellelil     I-    mUtllal.         So    Inn.   the 

J.;  feat  n  la  ill  merchants  in  the  expo  it  trade.  .Maii\  a 
dealer  in  >toc|<-.  ha>  had  occasion  to  thank  these  t'or- 
einn  ror|>oral  ioii'^  at  time>  when.  in>t  as  many  haiik-^ 
wei-e  cailiir.;  in  their  loan-',  and  it  seemed  that  hor- 
low  111.;  I  loll ;  .i|  her-'  Would  soon  he  riiiiioii>  or  iin|Mis- 
sihle.  the  a;^eiit>  id'  ('aiiadiaii  hallk-^  ha\e  come  into 
the  Stock  lv\clian;^e  with  oll'ei^  to  advanee  lieely  as 
Ioiil;  a>  tie    --eciiritv    wa-^  ;;ooil.       l-'arther    we>t.    lar^f 


rt 


Tlir   ll>l.<illPSH  of  (■,(,,,, ,11,1,1    /i,ni/,-s 


457 


Niiir  ,,f  surplus  CiiM.Kliiin  nioiicv  niv  cinj.lovr.l  i,,  tlw 
«'aiM  iMarkrts.,r  M  i„„,.a,H.lis.  Dnliitl.  iuu\  Chu-n^u. 
**"  ""•  ''•"•!'!.•  slop,.,  wlirn.  11,,.   l5;,Mk  wf    British  C.l 

'""'""  '^'•■^tahlisl i,  ranks  as  u,„.  of   il,,.  ,nosl   i,n 

'""■'•""  '•"•'•p">-ntin„,sur  th..  kiml.  In  San  Kraiwis,-,, 
""•••>'"•>•  iJritish  hank  lias  ai.  oMi.-,.  in  whirl,  israrri..! 
""  "  '"■;'^-^'  '"'sincss  in  .•xchi.n-..  ami  surh  Mihrr 
fi;Misacli(.ns  as  rircnnistaiicrs  pci'inil. 

•V('\v  N'..rk.  ..r  . •nurse,  is  n..t  thr  ,nilv  sc..n..  ..f   M,.. 
fansactinnsur   th..   CaniHlian    hanks    in    sfrlin-   ...\- 
••I'.-m-v.     Nearly  ..v,.r\  ..n. -of  th.-charlrnMlrn, m^Mii..-. 
Iins  Its  i.on.h.n    (•..rrcspondcii!.  and   .h.als    in    sicrlin- 
'"":^-      '■''"•    '■••"'■   "'■    iiiK-iv.t    in    .•nniparaliv..|v    ,p,i,M 
l'"''n,ls  is  M,  Inw  in   Lnn.hni  that  it   is  inwr,.  prMitahh- 
'"'■■'   ''•'"'<    '"    liyiH.th.catr   a    part    nf    it.    s.rnrit  i,.>. 
'"•"•'"•-    ""'■'•"■si    S.-..V    at     I    per   rru\..  than    to    keep  a 
•■■'^''   ''••'':""•'•  I'MiH'-l  "lit  at  call  th.Mv.      Cunscpirnt  I  v 
"i"'  <'iiiiadiaii  hanks  aiv  iisnall.\    >.unr\\  hat   in  J.ht  1.. 
""■''■      '''""l"'i     ••oir..spnn.h'iits.       \',y     rvas,.n    cf     the 
'""'"'''  ^^-^'-^i"  ;i'nl  th.-prcscnr,.  nf  a  nninh..r..f  hanks 
w.ll   .Mpiipprd    (or  >u.|i    iransa.Mi.ns.  thrn-  is  plmfx 
"'■    '"I'lprtiiiMn    in    th..    Cana.lian   .■\.a,aii.^v    mark.  " 


t. 


ami  a  hii\ cr  ..r 


-I'lhT   Is   alua\s    near  at 


ha  ml 


Th 


,i;"V.rnnifnt  tak.'s  a.|\  anta.-v  ..ft 


L.imioii    hills  I 


lis  w  hen  m';;'ot  iatin;;- 


>y  iiiNitin.L;-  tcmlfis  I'r 


am     ihcic    niav    I 


t'<  If' 


What     partii'iilar 
■i,i;ii  payni.'iits  ..f  rulh'ctioiis  thr.iiii;-!!  t 


.'111  all  t  h.'  haiii 


« ■    1 1 1     1 1 1  a  k  1 1 1  l;- 


u'  a;;-.ii('i.' 


''"'I'i"'y<''     ill     111.'    iiianilnl.l    .•xclian-vs    .,i'    .hun.^.st 
ti';i<h'.    I    .hi    imt     piiri 


'">•'   I"    ixaiiiiiic.      Th.'   c.inx 


l.'ll.'C.    .1.) 


Ilht 


en 


('it  \  ami  t 


<ss.  iv  -ivai.r,     Thf  hanks  ..f  Xrw  \ ^vk 


I.'  tiat  i.iiial   ha 


Ilk 


s  ^-.'mMally      with  mark. 


('\<'.'|.ti..ns  in  Chica-..  ami  Calitoriiia      hax.^    left    ih 


iiisin.'ss  in  r.tr. 'i^n  cxrh; 


•  iiK''  ;iii'l  a  iinnih.'!'  ..|'  ..t  h.r 


Kiiikiiii;'   ..p.iati.nis.  t..    Imiiscs   sp..(iali/iii-    in    th..-( 


1 


I«' 


■458  Tin    ( 'iiiHii/iii/l   liini/riiiii  S;/</iiii.   \S\',     i^!Mi 

liin'«<.  cliii'llv  |n-i\;itr  or  f(»r'ci;^ii  Imiikn-s.  XMtioii.il 
IiiUikcrs  lack  li.ii  |i  the  l;i<i  lit  ic>  and  t  rain  in  j;'  for  such 
lillsiiicss.  I'art  iriilail\  loi-  ili  alin;^-  in  i\c'(ian;^c.  tin- 
operator  nociU  halni--  of  cIum'  nliscrx  at  ion.  aculo 
ri'a^onin;^'  faculties.  iiMidcnco.  caution,  dccisiou.  a 
varied  (\  iicricucc  and  t  lioiipu;^!!  tccdinical  training;". 
'I'lio  ( 'a  uadian  ilia  rtci'cd  I  iank->  can  snci'ossrully  under- 
take  the    liU^ini'>v.    I'lii-   it    i-.    e\acll\    tlie^e    (|Ualities    in 

it>  ser\anl>  that  llie  ('anadijiu  liankin:;'  system  is 
adinira  My  ca  leu  lated  to  dexelnji. 


1  k. 

\f:- 


l-'uitlier  de!ail>  lieloue'  to  the  techni»|Ue  of  hankinn" 
praclice  i.r  to  the  ininutia'  of  hankine  law.  IJow  far 
the  |irinci|ile>  on  which  the  ('anadian  hanks  are 
ei;;ani/ed.  h\  whiidi  llie\  are  re^iiiated  and  accord- 
inLC  to  \vlii(  h  they  are  niauaned.  are  of  e,.ueral  apiili- 
catiou.    i>  a  (|in'>ticin    t"    he    derided    as    the    hankine- 

>N>^teni  I'onforin--  to  the  general  eceUoniic  tests.        lloW 

the  ('anadian  hank--  ec<>n<iini/e  capital:  how  they 
Utilize  and  ili>-trihute  it:  what  i>  I  he  security.  <'on- 
vertihility  ami  elaslicitv  of  the  lirciilat  in;^'  medium 
the>  supply:  how  thorniiehly  are  tin  .v  creditors  pi'o- 
tected  airain->t  li>>.>:  Ikiu  low  and  Imw  nearly  eipial 
are  the  rales  nf  interest  in  dilVerent  parts  nl  the 
eeunt  ry  :  he  w  (  heapl\  a  re  ot  her  hank  i  n;;'  ser\  ices  sold  : 
how  easy  ef  access  are  hankini;'  facilities;  what  -up- 
port  ha  \  e  WMi!  hy  customers  iu  crit  ica  I  t  inies:  ami  he  w 
f.ir  dee->  the  s\stein  pioiiiete  tie"  -lahililv  of  eonunei - 
cial  eeulideuee:  these  are  ipu'slioU'-  to  which,  pi  I'- 
hap--.  till--  (diajttei'  lerm--  an  answer.  .\ccordine  to 
the  true  respiiusc,  the  uiefits  el  tile  (auadian  UliUk- 
iii:;-  S\  steni  nm-.|  l>ejud;;ed.  If  th'  pieseut  answer 
he    ^uHicieui.     the    reader    ma\     diaw     his    own    coii- 

elllsioUs  . 


AIM'KXDIX    I 

'I'AliLK    SlloWINd     TIIK    (lUA.Vl)    ToTAI.S    oK 

'rilK    IJAl'.IUriKS    AND    ASSK'IS    (>K 

TIIK  ClIAirPKKKI)    I5AXKS 

<»i  the  ISiiiiinidii  of  (  iiiiinla  as  ii'iiortcil  In  the  ^.'nveiniiifut  on  tlu' 
:''i'tli  .luh."    I^t;7;  the  :;ist   l>ftciiilii'r.  I m is  is!/:',;  an.i  tlieilnth 


;  I 


h 


n; 


i-i'.'.ii'.', 

::il  IK 'I  I 
l.'il.lNNI 


I'M -.I! 

itiii'iiiV 


I>"»^.  Ilu':'.|,si  Di'ci'iiil  IT.  isiis-ls'i; 


and  III 


>tli  J 


line,  I  vt| ' 


llalan     s  iliu 

toothi'i 

IliinU'i 


|-',!"H|.:Ht 

I  :l'r.',:i',!i 
I  11.;  :.'ir, 
l.'.iliiiii;, 


Till  111 


I.IUllll 


llll'H 


?II..'.1>.1M 

.M.cKis.r,;-, 
"■.l.i.y.'.lim 
w'.I'M.IH'.i 


Dill'    llMltil.'l 

Hunks  III 
(iiliailii 


Umi' Id miiki  itiiiii*^ 

IT    \K<'llilr> 
Hilt   III  rillluijii 


l.llllillllii'- 

llill    IIK'lliilril 

lllllll'l    llli' 


(ill 


I'lftllMn 


III  l|i|> 


SI. 


mi 
l.i'.'l.hr.' 


J  !•!•:, Ill  I 

:.',  lif.',>"«; 


Jitmi-m 


■ii.i'-i  '/.'i; 
'.i:t,:;",ii,]n» 


lliil.i 


.III 


linliii 


III  AiJiiii  ii.,  .,1  |i.  Aui.|ii.|i-s  III 
111!    Iliuik  I.I  1.1  i||i.  limiK  urli) 

..III"  1    llllllU-,        1. till  I    ItMiiks 

I'l   Aiii'iiiics     1,1-  A).'i.|i<-ici  III 
ill  limiyii  III,    I  inli.ij 

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I  iMi.lii:; 


III  |. 'sits  iia'liUi 
.1!  ili'iiiaiiil.  Ill' 
.itli'i  mitln.,or 
1.11  II  llM'il  .lii.\  . 
iiiaili    li>  ollici 


I  aiiiiilii 


81. HI  VIS 

i.ii;i.';!ii 

I..V.Ml:ii 

i,:;.M,;i.;-'' 
1,11;  i.'i;'.! 
i,iii."i.;:ii; 

H|,-,,l!l,. 

s\m  iNiii 
ii;ti,:.ii.i 
^'itl,."'.!:'. 
liK.iiiiii 


llalaiU'i'S 


lino 


t.l  o 


llici 


ila 


ll'k 


il'iiiiaila 


■saiict! 
'.•,1.1. 171 
;.4:.'l.:iiM 
::'i.V.Mii."i 


ll'kHniCaini 
III  dully 
(■M'liaiiK"''* 


$1 


ll'.Hl 
'.'no,  l"i> 


r.i  .v;i 
:.'ii..i'..". 

l.Vi  111 

iin.im 
ii'.',.'ii'.' 
iL'i.iii'.i 
-iMiti 
ii;i..v.".i 
v.i.r.  1 

l'.'.'i   111! 


•Mil,:  171 
l:.';,4.'-ii 
liiii.'.iiiii 
l:.M,:.'i;s 


:.li.i  mil 

.Vs.'i.'.n'.' 

1, Ml  1,14-' 

l,i:ui  i;i 

tl!i,r,:..l 

I'.'.'Mi.i 

nil. mil 

1  'M:  nl-l 

l..-i<i:i.;ill 

I.n.'i7.ii:sn 

i,il:;.i.-:; 


i.un;!.-:; 
i.li.ii.ii'.iii 

4.r.l.MM 

.•i,.v:i,7(i."i 


:!:.'l. 


:i'>.'.ii'. 
:  11,1,1. ;;.- 
I'.'L'. ii'.'i 

iHls.lnl 
4:17.1111 

;i|ii,.v;i 


t.-7,;i'.il 
rLi^M 

l|ii,7!«l 


i','i  r,i,7:r; 

llii'.itii  :ili 
liii,;i'i,."«:u. 

li:..sr.'.-,4t 


I. 


,:!7l.'.':i 


1 1'.,  I  Ml -.'.v; 

l.Vi,."i  I  •*,!.■..■. 

l.Vi  '.'|x,r.i':i 
nii,:Kiii!';i-i 
1;  l.ii.«l,:iM 


IT.'^.K.'tl, 


il 


lii!i,i."i:i.s:ii 
:.'-.'i  .--i;.;;! 
'.'|s,ii(.'.'...if,.-i 

:.':.'l,:.".i-.'.',il7 


till 


I'l.;    111. I  |s'«i  "I  Iri.tii 


.I'M. Ill 


,1.1  It. 


laii.r 


.III). Ila 


Ihiii  l.> 


lilt!  I  111'  11  ion  1  HI'  .il  li:iiil»s   ri'|iiii'tiii|..  lo  llic  yoMTinii'i 


|"'m    I  lii'in  woi  !•  a 


hva\s  iiioic  I'liarlcii'il   hank-  111  o|i 


•ralion    llian   tln.M'   ri'i'm  1  mu: 


III  III. 


IMAGE  EVALUATION 
TEST  TARGET  (MT-3) 


1.0 


I.I 


til 


02.8 


2A 
2.2 




^    ti&    12.0 


11:25  III  1.4 


11.6 


^. 


<^ 


/2 


/ 


^I^/^*^' 


:'-> 


^> 


>> 


y 


^^ 


Photographic 

Sciences 
Corporation 


m 


^ 


^ 


ms 


V 


..<~'» 


.* 
* 


^<b 


«>.>i. 


6^ 


k 


# 


27  WEST  MAIN  STREET 

WEBSTER,  N.Y.  14580 

(716)  873-4503 


% 


18 
18 
IS 


*'>  ^10  Gov- 

"llldlts 


•>4;t,.>.s;j 


~'0,HJO 


i81,(wl,">(«i 


Notes,  ef,. 
overdue'' 

I     lllKl  11„( 

si><-'iiully  ! 
SL't'iireil    I 


1,141,410 


,  Notes  atid  ' 

^oansto  >      mur    I 
,      tne        disconiiteii' 
J'';"^"'cial    over,!,,,:' 
''I'vern-  ,    iiml  w>t 
"ifiitH     ,  speciiill.v 
secured    , 


Other 
overdue 
I  tiebts  not 

I    f^lH'OiHlly 

'    f*<'ciii-ed 


'  I-uiirted  or 
„"Uier     i 
I  ^  ''"I't-rty 
I     <}i  the 
I      Uuiik 


;      '.•'tii'.'d.V) 
1,UN4.4IC 


Overdue 

'>elils 
■'^tciired 


SJ,;!47,i(i-' 
'.■")-">:{.,><(L'! 


"•'illEst'te 
olhir  than 
;  \\"'  Hank 


'  remises 


,On.'rD'l,ul 

riiietoth(. 

.'"I'lk  not 

inered  un. 

<ltH  lore- 

|"'iiinheds 

'  »'-\«iI\(t'l 
■'■li:,4l;; 

,   Other 
-issets  not 
nicluded 
Milder  the 
lorejroinff 
lieads 


Total 
Assets 


"•'•"'.  I!'.'.',!i;.'| 
11, !';;;,:;!;, 


O'liiieDelUsI 
secured  hy 

"'"'''•"' f:stau- 

sold  by  the 
ilank 


'  Si,r(io,fi(fi 


*--''.:.'o,;.'!i;! 


\:u 


i.'IIC.Il.Vi 


on  real  est 
"i:''.V<iep„sit 
">'  or  lien  ,,„ 
«oel<,  „r  iiv 
othei'  seciir- 
j         'ties        i 


I 


«I.4-..-...>-, 
'■■">!':..-):.'i 

•'i.~'ls  !(,s,-, 

■i.(»:,r,,-,!d 
•f,T:4,iiM 
•^.4r4,!l;.'0 

^<Jt;'s&  bills 

^'sofl„v'du.. 

•vofherover- 

<lue,ieb(.s 

S''<-iired  by 

'"'"•t{fa«-e  ,„■ 


•')e'>,44!) 
W;!,4!« 

i.;.'4-.i;i 
~M4l,n;:7 
~.;Wi,4:4 


;i,().")it.<tri 

•■i.174,:.'!!!) 

•'i5lK,,s4,s 
•■Vi4:.',!)ti(i 


~'.(i-)!t,4t)r, 

~,4.")'),s;i(; 
•'f,;.'4,s,40) 
-Mil.-,,  KM 
^',:«l,!i<)4 
.•',")l(i,K|4 
l.t'.'Midi 


'7~',  ;.■!(;,!)!);) 
rl«Mt(»5,14,-, 

^;i.:iio.;.'4;i 

'''vi*i(,rti4 

:M;i.\4i.r, 

l"\y«:.',tiS4 


'Jeai  Ksfte 

"tlirdeedonoftheli'MU  H,..,,°,.'    „ 
.'■•■!il<'St.,or  (othertha        «,','?"''' 
''.v.Iepositot       ftank    "   ii/nZ    - 
'"■li,.n„n      orenii.ses)       "  ""'"'  I 
s'<"-k.(,i|,y  '^  ' 

othersec'ties  i 


»i.'i.'.M;i7 
!'ll  -,:>;{ 

l.l>!Ni,(«l7 
HrXI.HDM 

i.atti.iiio 

'.5!4,a.S4 

■•'.0'«,tir4 
")«^',M;i4 

!l~'7,  IIMI 

I  74:,',yi;j 


1.7.s;),ori 

1.1117,^1): 
l.:il(>,4;i,-, 

~.l(H.,7T(i 

J.->4."),WN 
].l<l!t,till 

I  "7X',it!Ni 
l,4~'!l,7KI 


141 


I7.- 

144.' 
(ti.: 
ti"), 


,"C'4 
,li77 

,tlMS 

17^ 
l."c' 
r>7y  I 


j;i,iii-.. 

■■•',174 
I.li7!» 
~'.l:.'() 
.•i.intl 

1,4.-..^ 

I,s.-,; 

I.4!i<) 
l.till 


;i7(» 
.'<:i4 

.(i|,s 
,."i(i!t 

,~'7.s 


UK) 
..•.',S4 


.*l.!«w,;ill 

1.7l,s,K'iO 
l.40<I.Kr. 

I  .<i!iii,«t;i 

Iv-.'l!»,4-l 
I,'i7!i„s:.')i 
l.;i.'il.:.'tii 

l.-.'lK.,T.- 
'■'W",-|4() 
!'!H),0,S()    ' 

l.(f.'7,Ior   ; 


f.'i!i;i,7l;f 
■"iiri.iw;- 
•i!';i,7ti;i 

.'*4M(ls 

■'<;i4.;i.-i(i 

•ilil.lIS 

'i7;i,4.">:  i 

t>!tti,4,S!t 
7I4,t«i    ' 
';«',4i"d 


•M4n,.-,L';i 

•■!,<»).  i-,S 
.•i-M.i,;.'47 

■•i.lw,74.-. 
•'i.tuil.OU 

•i,7;i7,(i!t<) 
•Ui.'.7,l;.':.' 


~'.ll!tl 


~',IHK). 
1,W|, 

;i,N,sti 
.'-,!i:.':j 

~',4rki 


,!"7!1 

,:i7!i 

.Ml!) 

,H!I!) 
,»I7 
,N.S|» 

.lil.-.' 
.(11.-. 


I!*:.' 
.■.'.'io, 
.•-'I.-..' 


'■'■'>.'), 
~'tii(, 


.•"|''I7.,-|74 

."iW.lKi.s 

.«7ri.,'.'ii 

M'.'i..r,i) 

'•^7,.-,i  I 

>>'i;i..-.4ii 

.■!IIO,4.s;.' 
•"''ii,!l.''"f 
•■■i4.^.ll.-.' 
Iiii;,)ii;:j 
'••i7,ir,!i 


Overdue 
Debt.s 


h 


.h 


j  ; 


~.4(7.x':i4 

-.•.W,7l:.' 

■(■''7,(i!t;i 


;i.ii4o.((7,s 
■•-'.Nil,;!!*.-, 


Ml4,.i!ll 

l,(lti7.;.'K7 

.'<;)4.4H(l 

!es,i5i 


7W.71;! 

7!  IN,  (id!) 
•••'iti.tMO 
(Wf.NIO 


».4i>;(,(ii<» 
■'.<i<ii.ti:.'i 
•■'.i;tM,-,ti 

••■•'hi,",,  i.s.s 


1,-Vi7.(l4!i 
l,7ll,4lii 

i.i;.'!»,;!,\-. 

l,4i;i,!l,-,4 


••-Nl.7.-.t,ii,i| 
•"*"',7:fO,!i|i) 

>if7,.'i4;.',4;.'!) 


A.  S  S  E  T  S  -  A  I'l'i 


is;i. 


Coin,  ItuUiuu 

iiiul 

Provinciiil  Notes 


ISHS.. 
ISti'.l,. 


,*!• 


ir),ioi,i)!U 


I 


Spocio 


'Proviiu'iHl 

or 

Ooiniiiioii 

!     Notes      I 


. .    $s,7.">,-.,2:i-~*      $ti,<.iO:i,:i»i'." 
• .     r),4,-)'.i,(i:.'.">        ^<,-'l'.t,::.';i 


Dominion 

Notes 


l--.:i.. 

1 

■    r,lt;:i,'„'<.;; 

$H,1()!I.UW. 

I>74.. 

7,4Ki.llH 

'.t,5'.t(>,-t.>t 

is"... 

'     ti,.'-7!»,;t7-' 

H,r.44,tWl 

lS',(i    . 

ti,17ti,Klt 

K,:tiH,ii;i 

1-;:.. 

ti,l'„'7,7:iH 

H,S!M),4;V» 

isTs.. 

.J.tWf.tKk"' 

n.O'.IH,;,'!^! 

IST!!.. 

r.,S0!i,(C)".i 

'.t,i;tti,4:i!i 

l.SS(l.  . 
issl.. 

r.,it(i.-),:i70 

(U.tii,(iii» 

1S.S:.'.. 

ti,.V«.7lil 

lHs:i.. 

7,:.'i".,.v.2 

]XH.. 

7,4<i!l,7.Vi 

1  SN."> .  . 

ti,71(M^">K 

1S.N1.. 

r),H',tl,')7ti 

Iss7.. 

().(»;(7,'>ti;i 

1  sss 

;.:t7:i,i:« 

ls,sil    . 

.■).;!(i7,e)(i;') 

MKI.. 

(i,lK)(),".4« 

lO.'ci),;!*!:.' 

!),H;Vi,H;{7 

lo,4t>;!,s4:.' 
11,17H..S4() 
ll,007,t):i'.t 
12,44ti,.«:.'lt 

'.t,4(fc"i,r)!it 

1(I,():!0,1!H> 
1(1,1171, 7-'--' 
'.M17.S1U 
'.t,(i7.s,;fc.':i 


Proniiss'i'j' 

Notes  or 

Bills  of 

otiier  U'lis 


i  8i,>ioti,()r.^' 

I  •-Mt'1,71^' 

1  :i,:.''.Ki.(i7r> 

!  ^',44U,r.7U 

!    Notes  of 
I        tiiul 

ClUHllU'.S 

on  i)tlier 
Uuiiks 


:t,'.trh!,(i5:i 


isiil 

ISil;; 

ls!i:t 

:;<illi  Jiini'. 


lH',t4 


r,,7(i'.!,;ii;i 
ti,7:io..")(X) 
7,n<.ii,;tii 
7,4:t«..'ii:i 


1(1.1 1:!,()40 

l:.VtM,it).H 
i:!,'.in7.u''.f~' 

U.OltUiit.S 


i  H4:!,(I7.'. 
l,7tii,;jr.'.i 
1,.S1H,57I 
l,M;tl,!»7!t 


4,.').s().:,".i4 
.-.,rtf.t,7:i7 
4..">7s,i4;i 
4.1.s7,ll7."> 
4,417,liHt 
4,;iM.07() 
4,.')titi,">.")4 


4,.'><1."),00."> 
"),s;i,"),41il 
tl,7H.".,'.t7;t 

7.'J.sH.;i(i7 
ti,l()(),;.'7o 
7, .stilt,'.  77 
7,i:i.'>,07ti 
(1,474. 7.'..s 
s,;,'.-.7,:t.s."> 
7,.s^>ti,;L'.'> 
7,7M..'i;i5 


■    Deposits 
I       witli       I 
i  Dominion  . 

Governm't 
j         for 
'security  of 
1       noti- 

circulati'n 


!l.ll!l, 
■s  7'ti, 

(1,4(1:,', 


Uulailee 
tluc 
from  ot  he  I 
Kiinks     , 


Sr.,:t.t,-,,;;7:i 
s,(ii7,.'>:!ii 
7,Oi;)..s4: 
!'..s.s7..'>7: 


I  Hiilanif.s 

(IlK! 

from  olliff 

Kiiiiks 
in  Ciinailit 


f:.',o:i.',.s2<.i 
;.'.(i:i4,74l 


r.uliiticcMliiefi'oiii 

odllT  IlKlllis 

iKit  III  CuiiadM 


:li,i!ii,»'i;i 
ui.si,-,,irt 


Malitneis     Balances  ; 

I  line  limn     .liicCriim  ' 

.\t?l'Ilc':-  <if  AfTI'Ili'V  dl' 

the  Uiiiik  thfli'iikiif 
I  iir  Irdiii  riiiiiintlii'C 
iitlicr  It'ks  ItiiiikMir 
or  Ak('IIi''S  A^'l'licV  ill 
\  ill  r(irei|4-ii  iIm'  liiileil 
'•  countries    KiiiHiium 


(iovern- 

ineiit      I 
Securities 


S(i,^'77,.">!t;! 
:i,c>(jH,<.t;t!i 
ii,(t'7,5^':i 

4.847,448 


I  Govern-  | 

ment      ' 

Delient'res 

or 
i     Stock     I 


'J,ti;".(),7S4 
;i,h(iH,(i;(:i 
;i,47(i,.')K:i 
;!,t>(ix,4;57 
;(,r.:.';i,iiti'.i 

■4,74;!,OUi 


'!.:i7s,'.i,")) 

j;uu:;.4c>l 

s,.shs.ii(i;i 

1,.'mS.(i:>7 

s.ls'.',;;-,; 

i.iiui, :;:.'> 

."i.!l4S,.s(iO 

li.i.x.fi.i.'.s:! 

4,ils.'),siKI 

•::'>^:x<: 

■..s(i:i.s4.s 

i.^''.*i..'(ii 

l!i,:il;i,>;) 

.-,,>;  ,-.'t.. 

Loiinstoor  Loans toor    Itiilunces 
Deposits       l)ei)o8its   ,        (ine 
iiuule  in        mude  in    'lidiiiothei- 

other  ll'ks,  other  Il'ks,    Itiiiiks  in 
i    secureil     un.seenred      Citiiiuiit 


S:i:{4,l(il 
4!i:i,sit4 
l7:.',l!is 
I  :)!,.■>(  L' 

l(il,'.KI4 

rk'>7,7!i:! 

;i!t(),7(i.s 
4(t4,H.H,s 


;{7>.t, 

:.'47, 

tl7'.t, 
4(14, 
„'74 
1().V 


,070 

,.'>(17 
,4.-.7 

,.')(IS 

,(1U 

,014 
,rc'ti 

,(KH) 
,7;!H 

,000 


$:i.u'(i;t,.v.:i 
:,'.."i.Vi.:.'(iii 
:(,;tii..-.:.'i 
;i,:((i7  ;.'.s:i 
u'.:i:)l.;tl7 
;t,:i04,(t';! 
;i,(Nt7,.ssii 
:i,.s.v>.:ii: 
;i,()(r>,'.i!ti 
:i,l.s:.',:.'.-.:.' 
;!,;);!.".,s!t(i 


Deposits 
piiyabU'on]   Hiiliinees 
ilemani)  on        ilne 
aft'rnotii'e  from  othcf 


:.';.iUl, 

i'.i.;;ii. 
ii.itii 

Is, I  (till, 
l^MIl, 
ULlKis, 
l.'.,llli, 

ri.ii'.i;, 

is.lilt;), 
l(i,7:.lt 
'.i.l'.ili 


111  IS 

.-.i;; 
ii;."i 
i,m; 

lit-; 

T!i."i 
si.-. 
sTt 
.'ilH 


4,;it,t:i4 

."l.Sll.tu'd 
l.Slo.Llf. 

i.:.':.Vi.;ii;! 
••i.lis.m;! 
:i,'.i:!ii..Viii 
;.'..-isi.iitri 
:i.:;ils,l.M 
:i,;ii;i.:i;',ti 

ii.'.tlU.'.tlKi 


oronuti.x'il 
(lay,nm(l<^ 
with  other 

Itanks 
'  in  Canixhi 


'Mi 

7:^1 

1144 


4:t,70(> 
iriO,o(jo 

'  itillNNI 


Jii,:.'S!t,;>lK 

;t,iilii,i:f7 
;i,ti:«i,s.s;! 
;!,;.'s7.:.'.v> 


Hanks  in 

Cuniiilit 

In  daily 

e.xchatiRi's 

I 

$:i'>ti,ii.">7 

ItO.sS.'i 

I7;f.(i'.(7 

"•'s  ;.".f.i 


is.tdl, 
;.'l,ii.ss. 
ls,:.^.".t, 

I.'iJmIi, 


81,4;!7,«70 
l,44U,.'<:tc. 


Loans,  ilis-  LoHns,disi 

counts  or  adv'cesfoi 

adv'ees  for  UMs  of  tie 

wh.  sliares  of  itiiuiieii 

ofthecap'l  othercoii 

st'k  of  an>    )onrn.  I' 

otliei'liank  (Jrit.or  l"t 

are  held  as  piiblie.sec' 

collateral  iield  as  ct 

.security   cral  secui 


i.;!7;!,i!ir. 
l,:;o4,.H4:i 
i,;t;!i,i5i 

1,:;mi.'>!H) 
•,',(is:,',:.'(W 

LV-'<Ki,17!l 


Dominion 

(iovern- 

iiient 

ltcl)ent'res 
or  Stock 


Sl.l^^'.IO!! 

1 ,0!lil,S^".i 

l,(»l(l,S(J'.l 

'.H)0,7U''.i 

l,4(r(.4:ti') 
4,;!I7.070 
4,  HiS.thfS 
:.'.(l!(!>,(17'.t 

;.',04r),o7(> 

U',4(W,;!47 


Provincial, 

Itritlsh  or 

Koreisn  or 

Colonial 

Public 

Securities 

otiier  timn 

j  Canadiiin 


Si,.'.t>.'),r.4:.' 

l,S(«.."i04 
l,»"i,07!l 

i,;i:.'.-..(M4 
i,(ii-~',".!.s.-. 
;t:i.M,io(i 

•t,(l4(i,'JI0 

:!,(ir.!i,(iKi 
4,47.5.  i;!~ 
.\:V.o,(ir.i 

(1,14I.O'.IO 


8;i,sv.',!tU   1 

i-^,-m 

r.,3us,Hio  i 

.-.,(KK1 

•J,!l7ti,(ii')l 

:]jM 

.-.'.Sl.'it  oSK 

(i,s!4 

i.'.oiti.rc'-j 

.-...■.uti 

:.'.")SO,l)|(i 

.^.7h:.' 

1  ,ajo,44t; 

."j.S'.lf 

Loans,dis 

ad 

v'ees  ft 

stock, l)oi 

de 

)'SOf  I 

or 

ith'rc 

or 

>om..l 

Brit,  or  1' 

or 

Colon 

sei 

iirit's. 

thanCiin 

art 

■heltia 

1 
1 

lat 

1 

i 
1 

er'l  se 

8  s.oii 
i:>.'.t7( 
lii.sd 
lo,+l.' 
1 1  i« 
ia,.v>( 
y.ijr,: 
10,4.". 
11,;;* 
iii.rd 

i;!.44 

i  Canatliun  i 
'Mnn'lSeii'Si 
iind  British;  Canailian, 


Provin'l  or 

|Forei>?n  or 

Colonial 

Pnb.  See's 
'(otherthan 

Dominion  I 


i^:i:i;..V.il 
!.ii;iti.;t4t 

:i.'ilU,L';.1l 

:!.iNi,iii7 


;!,ofii  .7'-'~' 

:t,:t's,os:i 

li.Mll.liHIt 

;i,i,-.7,4i;i 


fii.4;ts,lor> 

H.(>U,!l3ti 
!t,',IHl,tl,S0 

io,s.-,'.i,;«i4 


British 
and  other 
Uailway 
Securities 


81,su'.">,i»(i-'. 
(i,:.'4;!,:t;t:t 

(i,(ilHi,H.")(i 
S,'J40,707 


Call  L<ia 

Itonils 

Stoc 


814,4(1 
l>.(,'.i.'i 

i4,'.i;i 

14,(1(1 


For  :((Jth  .1  une,  lsti4,  the  amounts  (fiveii  for  Total  Assets  are  uppro.vimate,  the  return  I'-r  .N. 


liii  linking' details  for  one  bank. 


A.SSE  T  S 


AI'l'KNDi.x    l-l\inliliW,l 


Notes  and 

Hills 
(liacuunted 


$.">4,Sl«t.l«  I 

■>:t,(ir.:,',4H",i  ; 

i!:.',(s7!i,:i«W  ! 

7.'>.(17;t,47il  I 


iLoans,  (lis-  Loitiis.disc'sor 
cou  (US  or  ud  V  'cfs  I  or  w  h . 
adv'cos  for  b"ds  or  dcli'ii'.s 
wh.  shares  of  iiiii!iici|i'l(ir 
oftlieca])'!  othcrcoip'';,.!!- 
st'k  of  uii>  )om'n,  I'rnv'l 
oth('i']iiink  (Ji-it.oi-  I'oi'jrn 
are  held  us  publiesec'sare 
collateral  field  as  collat- 
socurity    eral  seeuiitics 


Loans,  discounts 

or  advances 

on  I'urreni  aeuoinit 

to  corpoiutions 


S;.Mii;i,is!i 

:;,I4!1,.Vj1 


Notes  and 

Hills 

discounted 

and 

current 


S  S!t,7(i4,^'7!t 
li:t,:i.'4,lu4 


Lonnst  III.  Cnv- 

eri.iuinis 


$lv>^',.'|S 

■>i:'i.V<! 


'Notes. etc. 
overdne 
anil  no! 

S|IC(iullv 

seen;   il 


JI.4      ii; 

1,141,4111 


Loans  to    Loans  id 
!         the  tl,,. 

!(ioverinn't  I'mvlncial 
I      of  the       (lovcrn- 

IJoniiiMon      111!  Ills 

I 


8;i,«iu',iii+ 

■),31W,HI0 
-',il7ti,(ii-)l 
.•-'.K.tt  fiSS 

Viwp,t>iii 

I  ,^'W),44(J 


>:i,r)ii:i,t;r,:> 

."),ti(lti,Ml(i 

;t,.'(;ti,!iKii 

li.XU.lIK) 
•■)..'>0t>,7Ul 

.■).7H:.'.7ii(; 

.">,.s!I4,:.ML' 


.•.',!l|!t.7!W 

:i.liis,(i54 
;!.;.';.'H,:.'74 
4.7:)4,:t;« 
;),.")Si,(;i.-) 

:i.7!l4,!ll^' 
4,4:.4,!t7;! 


Loaiis,diec'sor 
adv'cesforwii. 
.stock, bonds  or 
dell's  of  niun'li 
oroth'rcorp's,  counts  or 
<)rl»oin..l'rov,.  advances 
Hril.or  Kor'gn 
jorC'olon'l  piili. 

securit's,  otli'i'  ---■.■■■  ,.-■    ,  

;than  ("aii'diaii,  "  'I'  atioiis  (.orporatins 
are  held  as  eol- 
latcr'l  scc"iit'b 


Loans,  dis- 


I  on  curii  nt 
account  1(1 
Municipiil 


Loans,  dis- 

COUi-ts 

or  advances 

on  eurrent 

ac''(iiint 

to  othei 


ll!»,(l47,;'/)0 
l;t!l,:!7!l,4ri7 

li!t,4it',;i:i-„' 

n<i,47,">,u;io 
li7,:Ki<i,;iiii 

!tT,t)0;t,t),S8 


!  other  cur- 

reiit  loans, 

discounts 

and  ad  vane's 

to  the  public 


Notes  and 
Hills 

discounted 
overdue 
and  not 
speeiallv 
Secured 


8:.'44,7iiti 

«    i;(,.Mir 

Jl.tMl.VK) 

144.ti«iO 

'.'11  sill 

1,4114. .-(IS 

."lli.it.M 

.     It:, .-nil 

4.t:{ti,ii:)ii 

117.147 

T,',  .{!>•'.' 

:i,|.\">,ii:;i 

I'.i-.',!IS4 

-ri,:il'.i 

:!,i:w,17(i 

77,ii.">4 

\.>^-\>.-,-:-\ 

L'.iifi<;,-,.'(Ki 

f<o,ti!n) 

1      J74,.")l.'i 

:,','.(;.' 1  s|s 

8  H. 

y.i 
II). 
Ill, 
II 
i~, 

i:i, 
III. 
II. 
i:i, 

i;t. 


,011 

,'.i7i), 

,M)1 
,41.-), 

!i;.'!i, 
,.">.'>l), 
,15:1, 

4.-)I. 

,7:t7, 

511). 
4411. 


.INiH 

,:ttii 
,.").s;i 
,1.V. 
.1)5") 
,(!.")(! 
I'.  I 
.11)1 

.1x7 

,:!.Hs 

Ol'.l 


5  Him. 
i;4ii, 

I  .!IS^. 
1  ..••.■)!l 

l,:i;il, 
I  ..")7.'*, 
:.MI4. 
:,'.si:t, 
:i.7iiii. 

I  ,i)."i5, 

;.Mi!iii 


;!S4 

,.'i.')ii 
,<iii> 

III  14 
,sii:.' 
,;«i7 
.sii:.' 
.suit 
u;t.") 
171 
1.S7 


?  4, 


;k5, 
,;.">ii, 
,i.".;i, 

,L'54 

,s7s 

tm. 

S.V). 

.S7I, 
.)-.) 

•.'im! 

•,'liS, 


,i')6ll 
.5^*7 
..')•'!;.' 
,Hi;(i 

.\:n 

15 1 

~';i;t 
4:iii 
mii'i 


3in5.5s7,r)7:.' 
l:.':i.7lii,ii(W 

144,414.1118 

i:t;i.:i7n..-,5ii 
l:.':j,lii!i,4!ii) 

l™'5,4!i;i.l)lill 

i:t.5,i);i:i,'i:ti 
i;!K,;iti.s,:i4i) 

I45,7."ill,4.s5 
LVLtJ-^Milt' 

!.-):t,:.';«),lsi 


KO!t,: 
WI5, 
IfcM, 
'.^.') 
,517 
1711,1 
.IIKI. 
.IN(4, 
..•.•4li 
.IKJl! 


1,5 

I 
I 
I 
I 

1 


fM 

l<i« 
'.i.-)L' 
l.s^' 

i;;:.' 

7Kt 
IM 
447 
,:«Ki 
7;i!) 


>:.':i,Tii5 
!(1 1  :,;.•:; 

i.'i'.lli.Ki: 
Vi(l,'>'.)S 

I.;."!!!;,!'.!!! 
I  ri!'i:M 

■.'  I»M  I'l7l 
'.!■'',     1(10 

I  ;t;.'.:)i;; 


ladiaii  ' 

I'lSec's 

Hiitish  Canadian, 

.in'lor      Hritish 

■iKn  or  and  other 

onial      Uailway 

.See's    Securities 

_'rthun. 

liiiion)! 


$l,W5,iHi.". 
ii.:.'4:!,:t;t:t 

li,tH«,«i'H> 

«,u'4(i,7o; 


Call  Loans  on 

Honds  and 

Stocks 


$1 4,4111. im5 
1>.|,!I.")7.!I4;! 
I4,:;fi).ii:.".i 

I4,li()0,<l|5 


Ciirrenl 
Loans 


flsi;,,v.Mi,c,it' 
l!is..">;fLMii(i 
;i(K),:t!i7,4!is 

:'IK;,!l,5S.(il;,' 


:.VW!i 


l,7.'<:i, 
1,1117, 
1  :tl(i 
uMim. 
1!.^':.-,', 
1..5I5 
Mim 
i.ii^: 
'.(li'.i, 
1.117^', 
1 ,4;.li 


1171 
,»'(I7 

4;i5 

7.51) 

SiM 
,,H.5S 

1)11 
lUi;! 

.ii;.".! 

,!«H) 
,7.S! 


:!-.".'.(i|;i 
Mi; .;.":;» 
:;-;(M.:i:; 

i.s',,ii'.i;i 


Other 

overdue 

debts  not 

specially 

secured 


ri7. 
-'!;.', 
141, 
17.5, 
1  :-•:.', 

•IS, 
Ml, 

.5:.', 

144 

m 

1)5 


Landed  or 
other 

l'roi)erty 
of  the 
Uunk 


fi,ieK,:.M!i 
i,r)i)7,r).'iii 

l,IHIIl,,S05 
l.tJHt.41tT 


jOth'rD'bts' 
\  due  to  the 
J  Hank  not 
linered  un- 
der tore- 
Itroinif  heds 


Oxcrduc 

Debts 
secured 


Sl,:!47,ir):i 
1  .r>:il>MU 


Heal  Kst'te 
oilier  than 
I  the  Hank 
I'reiDises 


Jis.'ii),.").'*! 
7il7,7!lO 


Itaiik 
rreniises 


!  Jl.lDII.HIi;! 

'    ~',ii;.':.','.i4:i 


O'due  Debts  ' 

secuHMl  by 

inortnajfo  or  Heal  Kstate  the  prop- 
other  deed  erty  ofthe  llanklother 
on  real  est.,    ilian  I'atik  pi-emises), 

orbydeposit         and  Heal  Kstate 

of  or  lien  on  sold  by  the  : 

stock,  or  by  Hank 

other  secur- 
ities 


fl,4.")5,;tX5 
l..')ii7,.'):.'4 
-',;75,.siW 
:i,u'lsiis5 
4.11.57, V.il 
;i,774,i).'<l 

;i,474,'.(r'o 

N<jtes  &  bills 
disc'dov'due 
&  other  over- 
due d(?bt,s 

seeuiXMl  b.v 
niortjrajfe  or 
oth'rdeedon 

real  est.,  or 

by  deposit  of 

or  lien  on 

stock,  or  by 
othersec'ties 


,">Wi,<.N«i 

'   2,:r)<.i.7!i:t 

.■)75,44'.l 

u',7s5.;.".i7 

W;!,4ilH 

;!,(I.5!I,'.I7I 

1  ,IM)7,iat 

I   ;i.i74,:.'<.i'.i 

1,;.'4:.M7I 

1   ;i,;ii«i,u".f_' 

:.M4l,.s:.'r 

'     ;i51S..'-4.s 

:.',:is;!.474 

:i,:t4:.','.iiii) 

Real  Ksfte  I 

llie         Mortfraifcs 
proi)ertv  on 

ofthe  H'nk  Jteal  Kst'te 
(othcTthan     sold  by 

Hunk        the  Hank  j 
premises) 
I 


i)<i;i  , 
;.m 

;m 

,1)77 

,1)88 
,17.'< 

,l:Jii 
,l,-):i 
,:t2H  ; 


$;t,iii.5,:.im 
:.',i74,;!7i) 

I  ,r)7'.t,H54 
•_',l:.'ii,uis 
;i.iKii,")i)(.i 

»',IC''~',~'7.8 

l,45:.'.-'75 
l,K.57,it44 
1,4!«I,IIW 

l,i)ll.:.'K4 
L-'ici.ir-li 


Sl.lHIK.Iill 

■l,7i.'<,.'<:iO 

1 .4011,8:1.5 

l,ii!ir),.sii;! 
1, •-•111,4:^1 
l,;!7!t.8:.>ii 
;.:i;!i,-'r)i 

l,-'18.:!i5L' 
!l8!t,.540 
!«IO,OSI) 

i,o:.'7,io7 


8.««,7i:i 

.505,087 

r)!i:i,7ii:i 

848,018 

8:!4,;i.-)0 
•nil. lis 
8:.'l,:.'8i 
Ii7;t,457 

r)!Hi,48ii 

714,4811 
7:«!,4.5I 


Overdue 
Debts 


82,l).')t),.5.8S 

:.'.;!.s7,;.'ii,s 
;i,o4o.o78 
;i,sii,;iii5 


Total 
.Vssets 


j;.',r)|s,o:.'l     .« .so,;;u'.s;i4 
:i,,so;i,.>.():;        ,s.5,|!i:.mi;.'I 

4,117,41:;  !i!i,1.5(l,ll.-)li 

:.',4:il,rit)8       Il!,n7:i,:il5 

Other 
Assets  not 

included 

under  the 

forcKoiUK  , 
\      heads      | 


J:.',.-.:.i).:.".i;! 
:'.'i(»i,7i)4 


:.Mi5!i,4i:5 
:.',4.55,8:it) 
:i.:.'48,4iil 
:.M(i5,in4 

L',;!.5I,!I1I4 
:^,5Hi.sl4 

4,4;.'8,i(K) 


3,i4n,.5u':i 

;i,IM(  i5s 

:{,lli),;.'47 
:i,iii)l,Ki,) 

:i,|.S8,745 

:i,;il7,8»)0 
:t  .")»)ii,.5:.'i 
:>  iriii.oM 
:i,7;i7.i)iiii 
:i,!i,57,l~':.' 
4,i87,.5';;; 


'„',i)ii!,!i;.ii 
L',sr)i.!i7ii 
;.',iiiKi,;!7ii 
1, 88 1.  (.-);.' 
:.','-.".il  11(11 
:i..s8ii,:!4-.' 
;.'  ici^imii 
;C'>:t.5,iil7 

5,;.'4S,.sMI 

;),.55ii.r)l;,' 
:.Vi.5;i,oi5 


v.il 
l.V. 


.iiiri.K.v.i 
,ii;ii(,siii 


17-',7;!l!,!lli;; 
:.>!«  1,11115, 145 

ls;i.;!iii,:.'t;i 

ls|.,s,s(l.||f,| 

l7r.,:H)4,7r)4 

178,i;t.s,41l5 


lii:J,.-):i7..")74 
^;i;!,.5ss,ii!is 
;.':iii.i;;5.:.'n 
;.'-Js,i!i;i,ii.",ii 
;.'i.5,7s7,5ll 
u'»;..sr.:i,.5ti) 
;.':il,:!iKi.4.s:.' 
:.';ir.',.5:ii,n.-:f 
:.'.-).5,:ils,li:.' 
:.'.5:.',lti().)i(;:) 
:.'iiii,i:t;,l,5ii 


1  -J 


1 


l,144,;i!ll 

7.85.71:1 

4.ir):i,r)lii 

U.vr.iuii 

:.'sii,;.5I.C)()l 

1,007,287    ' 

7118.1)1111 

4r)»)l,i«l 

l,71l.4l() 

;ii  15. 7:111.111(1 

,s;!4,(8ii 

r):!i).i>4ii 

5,i;t',i,')i) 

I,i:.".i,:i85 

:iiil.:.':il. (■)!«•) 

!es,l5l     , 

l^l.-SOII 

5,;!l)5,l.^s 

l,4i:i,li.-)4 

;iu;  ,.5l:.M:.ii 

'1' 
'il 


•i 


t  ■ 


if 


APPENDIX    II 


1 

n 


SUNDRY    ITEMS    op    THE    STA'rE:\LENTS   OF 
LIAPilLfTlES  AND  ASSETS 

FiRNisin:i)  to  the  l)en;irtinent  of  Fii-anee  fur  tlie  lust  jiiridiou!  ilays 
of  tlie  month  t'n(lin<r  the  .''.1st  December,  ISDO-ISO:'.,  ;in.i  the 
3(ith  June,  iSil4.  )<y  CliartereU  Banks  of  the  ]>omiiii<'n  of 
Canada  havini;  Paid-up  Capital  St(jcks  .if  ^.")Oo,oii()  or  (jver. 
Compiled  from  the  Canwli  'htzi'tte. 


•     \ 


4G4 


The  t'diui'liuii  Ihnikiiiu  Sijslem,  1817-1800 


\i 


(IIMI  iiiiiiitpdi 

llcposiN 

l.\    llu' 

Depotim 
till.'  piilil 

Vi'Rr 

Caplhil 

1 
1 

Cliciihi- 

I'llllli.' 

pa.vaMi 

;ii»i  U.C. 

I)ai(l-ii|i 

lU-.M     I 

tioii 

payiilpli' 

iiflt'rii'  n 

<iii 

•  ■r  oil  ;i 

ili'jiiMinI 

lixeil  .la 

r.iiiik  of  Montri'iil, 

lSt)ll 

!{il"Jtl'l(l!jt)OOll 

*."):'.:;2 

!?   Hill  14 

SI07.S2 

Moiitical 

ISiH 

llJlidO 

(]000  ; 

:)it>;{ 

1: 124 11 

11121 

hS'.»L> 

IL'IHMI 

mm 

.V',27 

i;i5!i7 

1217"' 

KS'.tS 

lL'()0(t 

OOOO 

r)i  I.")! ; 

1 :542s 

1.50m. 

i'li'tli  Juno, 

1S>»4 

rjdoo 

0000 

4542 

1:1740 

i:i7mi 

Canadian  Bank  dl'  Coni- 

1S<.)0 

0(100 

800 

21142 

4115 

8517 

nuTct',   Toronto 

ISiH 

0000 

<I00 

211112 

4!>42 

10227 

IS'.I'J 

(UIOO 

1000 

:{255 

5775 

11:12:' 

isit:; 

III  100 

1100 

llOtll 

1S(12 

112;._' 

r.Otli  Juno, 

18!t4 

tloilO 

1  200 

2545 

5105 

llO.-.r, 

Mercliants'  Bank  of  Can- 

1S!MI 

:)7!i!i 

!•: ;;;.") 

:!l(i7 

:5I4.5 

51181 

ada,  Montreal 

IS'Jl 

.")7on 

L'510 

;'.4oi 

:571>7 

075ii 

lSitL> 

i;ooo 

27-'.") 

15474 

".s:5i 

075". 

isy;') 

0000 

2000 

21127 

:5201 

0:1 5  J 

:>()tli  Jnni', 

IS!  14 

ooou 

:!ooo 

2:;i);i 

:582(; 

OOli' 

Bunk    of    Britisli    Nortli 

IS!  in 

ISOtl 

1L'4I 

12S0 

20s; 

02!  M 

America,  l.ondon,  Ei.^., 

1S!I1 

4800 

12S!I 

iiii;5 

2201 

087!' 

anil  Montreal' 

jSltL' 

4S0(; 

1L'S!I 

ii7;5 

2:527 

715;; 

lS!i;i 

4860 

I3;!s 

1084 

22:50 

Ut  <>■> 

;'.(»th  Jinu", 

isi)4 

4800 

i;;:;s 

1015 

2070 

0:545 

Bank   of  Hriti>li    Coliiin- 

IS!  HI 

•_'!l-_'0 

!i7;; 

IIOO 

2004 

:5i.-. 

bia,  Victoria  and    Lon- 

1S!)1 

L'!il.'0 

11170 

10(55 

2:5811 

2.s:; 

don,   Kiig. 

1S!IJ 

•J!lL'(l 

rjoo 

S4S 

2707 

(iii2 

is!i:! 

LVIJO 

i:;i4 

SS(5 

2481 

8!  It; 

.3(itli  June, 

IS!  14 

L'!I20 

i:;:{s 

SOO 

2772 

!i5; 

(.^•iieliec  Hank, 

IS!  Ml 

L'.")00 

,")!  1(  1 

5()S 

:5S75 

1421 

(,>uol)ec. 

1811 1 

•_'.")( )( I 

500 

(i4S 

4:5:11 

risii 

1  SKl' 

l!:)0() 

.".:.o 

704 

4481 

m:^ 

is!i:; 

L'.")l  l(  1 

:..".o 

820 

4:516 

■     187-J 

■"(itli  June, 

IS!  14 

L'.'il  1 1 

T).")!  1 

042 

4622 

221;:  I 

Bank  of  T-.ronto. 

IS!  10 

•_'(  11 II 1 

i .")!  II 1 

15!  II 

:')!IO!l 

'     2.S42 

Toronto, 

18!M 

L'l  M  II 1 

1 1  il  III 

10!l!l 

51!ll 

2017 

IS!):.' 

L'(  M  l(  ( 

1700 

1771 

5425 

i    :52i:i 

is!i:; 

L'l  11  )(  ) 

ISllO 

15111 

5 1:12 

:i;',:;ii 

".nth  .huio. 

1S!)| 

L'l  l(  M 1 

isiio 

1254 

54:54 

;       :512'l 

1 

Mol sons'  Bank, 

IS!  Ill 

■JOlId 

1100 

l!ii:5 

'    :io5i 

Montreal, 

IS!  II 

•JIlOO 

1100 

1 S28 

4:545 

:557"> 

|.S!IL' 

l'l  100 

Il.-)0 

ISOS 

5420 

:57>;.'i 

is!i:; 

L'l  II  1(  1 

1200 

1701 

4800 

:55ii. 

:'>ntli  June, 

1S!M 

•J(  II M 1 

1200 

15155 

5010 

:;87-' 

Imiiorial  Bank  of  Canada 

IS!  in 

1  .")!  II 1 

700 

1410 

24114 

,    :i:i,i 

Toronto 

|S!l! 

l!IO<» 

(154 

1510 

2!)S1 

;     441^^ 

1S!I1.' 

vi|7 

102:5 

15112 

:51!I7 

5IIII7 

IS!):; 

1"   ; 

llo| 

15o;5 

2(508 

■     550.". 

Hiitli  June 

IS!  14 

l'i.V4 

11. -)2 

1220 

2450 

501  ;o 

'  Till'  rt'tiini  from  the  Uiiiilv  of  British  North  America  iiicluik'S  C'auatiiiiii  l.n- 
iii'ss  only. 


jlOO 


I'piisiis   Deposits  1 


\  till' 

llU.'   |M||.|| 

llhlir 

pIlJilLI.. 

yiilil 

■    Miter  ii.ii( 

on 

III'  on  ,1 

main 

1      lixi'd.l^, 

l!M)| 

^I07S-J 

\-2\'. 

IIIL'I 

;r)<)7 

ll'17'i 

54L'S 

I.-)(lM, 

17)11 

1.">7mi 

HI.-) 

8.-)  17 

nMi' 

i  10L'-'7 

>77-) 

ii:;i':.' 

ISdL' 

1  1 1'.X' 

)1()5 

llfi.-.r, 

14.! 

5081 

—  1  .— 

i\ii 

()(;>ii 

,s;;i 

:    ()7S-"i 

•-'(ii 

j     OIS.V.' 

82() 

1    (idiii 

087 

1     (5L>iM 

L'dl 
i''7 

!     f)87!t 
!    7 1.')'; 

1         1  I  •  t-t 

(17;;:. 

•70 

(i:i4."i 

m 

;ii:. 

!8!» 

L'.s:; 

707 

liOl' 

4S1 

Sin; 

■7l» 

',i.")i 

^7.-) 

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4T0  The  runadian  /hnikiiif/  Sj/s/cm,  1817-1890 

APPKNDIX     III 

Tabi.k  showiii}:  grand  tntal  of  Notes  in  ("irt'ulation  at  the  end  of 
each  calendar  month  from  .lanuary,  1S7(I,  to  June,  Ism,  from 
"  Report  (if  the  C'liartered  Hanks  of  the  l>ominion  of  Canada," 
puhlislied  ais  su]>i)lenu'nt  to  the  Ctinada  Gazette: 


istii 


INSO 


l«8l 


18K3 


18H.1 


*; 

$ 

>; 

$ 

* 

Jan.. . . 

.      l!t'.)S-"-i'.l.'iS 

•jii:'.'.i:;:',(ii 

'MnliKi:!.") 

;11!I4(18U!) 

:i:i7L'L'447 

Feh. . . . 

.     l',i(il4.V)S 

•JlMM.'iL'l'.l 

L'MditllM) 

:!l'.")lM14L' 

:i4(144!Hii» 

Mar.... 

.     liM!i:Ms.-) 

i.'n7!  1:1775 

i'f;4:^',i:iit) 

:V_'!t47l'(i!l 

:!4r)i78i:i 

Ai)r  . . . 

.     lsi(;-Jlo.'> 

I'.isi  14:14:1 

L>(1(I44SSS 

:iir71:i;i:i;^ 

:i:'.os-_'ti.")S 

Mav... 

.     1747!ttioS 

lii(il-_".ii.'l 

l.'.V)7.".7l".i 

:ilsr)i(M4 

:ii:ii>i(i75 

June. . 

.       1S(I'.M!,S1 4 

•_'iilMd7il 

I'tiii  )•_':](  IS 

;ii'i'L'!)!):i7 

:!L'l.'lL'L*4n 

Jnlv... 

l()'.t."it;H:;o 

L'iilsti470 

•J(  104  7  7: 1:1 

;ii7i'itL-:!:i 

:i:'(i;i;!ii:w 

Aug.... 

.    i7L'r)S.")>'7 

L'i:iii7'.iri:; 

L'74S1L'1S 

:il4r,8i!ti 

:iL'ii8!i4:i 

t^ept. . . 

.    L'domiis'.i 

LM:ir,!i7!iS 

:ii7."):!.")Sii 

;i: !',).");!:  187 

:  111  14584.") 

Oct.... 

.    •_':'.•_'()  |(  II 17 

L'7".'si'itl7 

:i.")n:!4:i(is 

;i7!t4(ir)i(i 

;!.").")( i:iL>4;  I 

Nov  .  . . 

.     lMM'77lL' 

L'774r).-.!i7 

;i:ii4.">2;tL' 

:i7is(i:i(t'.i 

:i4(t(i7:ir)(» 

Dec. . . . 

.      L'L'L!."iL'7(ll 

■J7;i->:i.")>s 

:ii';  17)884  0 

;;(M(ii(i!i4 

:i;i7)8;i4.')4 

ls>4 


l.VS.-, 


Isn; 


ISNT 


1S8H 


?! 

» 

$ 

$ 

$ 

Jan  — 

:inii:iin7r, 

•J'.Mi8<,l(l4») 

L".I84."»7;17) 

ii-jiKKi-jn 

:'d  !•■")•_' i;!2 

Feb  ... 

L".'")7<il77 

:  10 1(1(11181* 

LMKii  11:147 

:i'j:i(i4ss7 

llKUiiUdO 

Mar  .  . . 

;1II1!I788l' 

L".i,"'.irji,i' 

■_'<);i.")!l!ll(l 

:il.V_>l4L'n 

;1I'.I85L'8.") 

Ajir. . . . 

L".  11':  11  111:!.") 

•_'841ll(l!l_' 

L'!i-_'.sltlli:l 

:  104(178!  11 

Ho74'J.")77 

Mav... 

•_N44!iii4;) 

l.".ir_'4L'n.". 

l's<iii(i7iM 

:i()ti8(i8(i;; 

li!iL'78n74 

June. . . 

:.".>( M 4. M  ! 

L".i(i'.i-jso:i 

L.".iL'(i(itl-_'7 

:i(i4:lM-iL' 

:i(i444()4:; 

Jnlv... 

•_'s(i(i:;:;iii 

L'".l(ill7'.l(l"_' 

JSSM'S4:1 

:  1084."):  104 

:iiiLMM.")5 

Au^'  . . . 

L'!ii:i7:iiil 

:i()i(i8:i.v.i 

iJ'.i.M.Vlsii 

:ii<jti(i4ti7 

:i(i448sir) 

Sept. . . 

:il4.")r,ii-.'4 

:ii:i:;4(ii.'i 

:ii',iL'7ii7)(i 

:i:i7(i.")iio'.i 

:i-_".ii:i")i;() 

Oft  .... 

:  1:1!  ISM  IT  1.1 

:i4.")7iiL'4ii 

:i."):iL'L'(il.') 

:i7oiL':i4-_' 

,   :i(li'4(1777) 

Nov . . . 

:i:ii;."):i'.i4.') 

'  :i.l7(c".i:;4 

:i.">L'(;(i:i4."> 

:i.">lti:i:iL'i 

:itio()(iii:i:i 

Dec. . .  . 

::i '.1:1.') '.1:1:1 

:i'j:iii:H)>i-_' 

:i4."i7s:ii7 

;:4:i.')4.")'.i.") 

H478.")4S(1 

1  .><sii 


I  -'.10 


IMll 


IS'.lli 


\^<Xi 


IWil 


Jan.  . 
Fell.. 
.Mar  . 
Apr. . 
May. 
June. 
July. 
Au^'  . 
Sept. 
Oct.  . 
Nov  • 
Dec. 


s                  s  ij                  > 

:il'iMi.':i7L'  :i(is70'.i(;i  :i|(i(iL'(i'.i!i  :l-_'7<i.")4tiii 

:il.s(it)|.">i  :io(i-.'7o74  :il!ii.'.">74'.i  :i-_'7!  Hd.") 

:iL'4 7 l."i •_'■-'  :il7iil-_M  :i:i(i-_'(i(iiii  :i-j4.s:i".iii.") 

:ili.".i".is|-_'  :iii()7i<,i:i,s  :;ii'.io4(i'.i»i  :ii4!tii:^tiii 

i!ii7--M4  :ii:i8:ii.'i8   :1i!il'7:i4i' 

i:i7!t8.s(i  :iL'(ii4t)!iii   :i:i48:i4i:i 

:i(i:i4:i4i:i  :il  !(i7i!i.'s  :;(i.")7;i!t(i8  :;l'4S87I8   :i:i.')7:!4(i8 

:i|o',t(rjs4  :ii.'7i,s:;(i:i  :iL'(ir_M!iii  :1J()4()I87   :i:i:iii.s'.i()7 

:L'ss.s4i".i  :  1.').") •_'■_': ir. I  :i4ii8:!(i.")i  :i4'.tL'7(il"i   :i")r-'8!iL'(i 

:;.")L':!:i:ilu  :iti4so()i'.i  :171M.'7<)S  :i,s(is,s4-".i   :i(i',Mi(i!i41 

:i4s!i!t.s:iii  :it;:in.")4fi  :i7i:!n(i'.io  :i7lJ4.")ii.")   :i.">i'_'(i."itil 

:i:i.")777(i(i  ;i.")iiii(iL'74  ;!.")t);i4i2'.i  :i(ii',i4o'.':i   :i44l8it;i() 


: K K 1 1 L".  100   :io.s:ii'.ii4 
:irjo'.iU7L'    :iL'n.")'.i!77 


lL'N:il747  :iiir)7i:!7.") 

lL".i7s.s4(i  :iO()0:!L'il7 

i:i4:in,s,s:i  :!07<tL't)n7 

1L'(  1:1: 1(17:1  L'!i!i!N147L' 


L'84I177I8 
:iOL',")415!t 


APPEXDIX  IV 


PIBLIOGRAPHY 


Acts  <tf  the  General  A.^emhln  of  H.  M.  Vro.-iu,:  of  Ne>r  nna,.mck  fr<m 

'^  '"'"^''K^  ttf  '»  '<  n-mi.,m  1  V.     F rtMlericton,  I8:;.s. 

T    7~~-     '^'''«   «'i"'e-     (Separate   volume   for  eaeh   session.) 
iTedeneton,  ls:;7.|s(i7. 

Acts  of  the  General  Assemhh,  of  ,he  Pr.,.u,c,  „f  Nuva  Sco/i„.     Hali- 
fax,  ls:;(i-lSti7;  (another  title  is  Proruicial  s/„/u/c.s  of  Kon,  Scotia  ) 
Aetsoffhe  Parliament  of  the  Dominion  of  f'ana.la,   l,S(i7-lS!(4    •'7  ses- 
sions.      Ottawa,    ]8(17lsii4.       (Ti.e    Acts    „f  each   session   are 
divided  into  two  volumes,  "Public  (General  Acts,"  and  "Local 
and  Private  Acts.") 
Baokuot,  Wai.tkh.     Loiiilmnl  litriit.     Xew  York    ISfl:', 
B<inkers  .Uaf/a-ine.     Vols,  ixvii.     London,  184;^' IS,''.. 
J'.owi.Ks,  Wii.i.iamC.     General  liKlex  to  th   .lo,i.',o,ls  of  i,'.    Iloo.^e  of 
Commonxofthe  Doioiiiion  of  r,,nada  an>t  to  the  S,'...~<ional   Pipers 
of  Parliam<  nt,  ]S(i7.is7ii.     Ottawa,  is.sO. 

•     The  same,  lS77-lS!)n.     Ottawa,  1  Sid. 

Bui.uoN,    TiiuMAs  (Gi.:oi!:iK    RvE).     The    Internal  Manaiiement  of  a 
Conntrii  P>anl\  with  notes  and  oltscivations  by  a  Canadian  Hank 
Manajrer  ((ieorfie  Hajrne).     Toronto,  ]>7'i. 
Canada  Gaz,t'  ,  Th<  (noininioii).     Vols.  i-xx\ii,  Ottawa,  Is(i7.|s!i4. 
Canada  Gazetfe,  77(,' (Province)      Vols,  i-xxvi,  1S4L'-Isii7. 
Citnada,    Pot'lie  Areoonts  for  the  fucol   ij, a r  endeil   ■.\i\th  June,    is|i;;, 

jirint.d  hi/  order  of  Partiam>nt.     Ottawa,    l,s:i:;. 
Canailian  Journal  of  fononeree,   Finn  ore  and  Insnrani;  h'aieir,  The. 

Vols,  i-xxxiv,  Montreal,  lS7ti.l.S'.)L>. 
("iiiTTV,  .losiciMi.     .1    Treatis,   on   the   J.air  of  th,-   Prerogntires  of  tlo' 

t'rotrn.     London,  I.Sl'ii. 
('inu<rii;,  RoiiKirr.     Ifistori/  of  /,n,r,r  Canada.     Afuntreal,  Imki. 
('i.Aiiiv  AM)  Ham..     Leijislatire  and  Docnnenla  r,i  ]t,.tory  of  the  Ihinl: 

of  the  Cnitrd  St.  t,s.     Washiiii:ton,  is:;i'. 
('()ii\wi:i.i.,   W.M.  C.     "Canadian   Bank   N'ote   Circulation"   in  Pro- 
ceed in.(]s  oj  the  Conrention  of  tlie  Ameriran   liankerx'  Ayiociatioti. 
New  York,  isni.  pp.  S'j  to  '.">. 


I*' 


472  'I'hr  ('(DKidiit),  liaiik-i)vi  Sjisiem,  1 817-1800 

CofKCEi.i.K-SKN'Krii.,  J.  (^i.     I'l'iiilt  dcx  Op,' vatioHx  (It  Jidinjuc.   Cinqiii- 

C'liie  ivlitictii,  Paris.  IS7I. 
Daxii:i..  Jdiix  \V.     .1  Trmlixi'  Oil   tlie   Liiir  of  Xcgotlahlc  Inxtnnneitts. 

Fmirtli  eilitiiin,  New  York,  is'.tl. 
Dawson,  S.  E.     "Old  Colonial    Currencies."     'I'/k-   CiininUan  Anli- 

ijiidridii  ,111(1  yinniHm,((ir  Join'iinl,  vol.  i,  no.  1.     >ront,real,  1S7"_'. 
DebatCK  (if  the  /f,»isc  "f  C,imiii,iii»  ,if  tlic  Ihiiiiinioii  of  (^aii,i(l(i.     Second 

session,  :'i(l  I'arlianient,  to  :'>d  session,  7tli  Parliament.     Ottawa, 

lS7.")-l8!i:i. 
Debates  of  the  S,  I, iiti  ,,f  the  Dominion  of  Cdmida.     Ottawa,  lS7")-lS!t:5. 
DiT.vr.Ai:,  CuAiM.Ks  F.     Ch,ii>ten<  on   the   Thcori/  niid  I/intori/  ,>f  Dank- 

iiKj.     New  York,  isiil. 
-.     Linrx  of    the    rnited  siatex  reldting   f"   Ciirreiici/, 

Fiiidiire,  diid  Ddiilrtii;/ from  17S!»  to  ISIil.     P>oston,  IS'.U. 
Di'RiiAM,  Eaui,  or.     liejiiirt  mi   the  Affdim  <if  JiritiKh  North  Ami  rica, 

from  the  h'urlof  Dnrhum,  Her  Mnjestii's  Iliijli  Vuinmimoner,  etc., 

etc.     ^Fontreal,  is:'>!'.     (Ordereil   by  the   House  of  Commons  to 

l)e])rinted,  lltli  February,   IS:!!*.) 
EcKi.Ks,  James    II.     Anwiol   Ih'poyt  of  the  Coniiitroller  of  the  Cur- 

niicy.     Washington,  is'.i:'.. 
FiLi.MoKi:,  Mil  i.AiU).     Uejiort  "f  the   Comptroller  of  the  Stote  of  New 

York,  184!i.     Alhany,  lS.')(t. 
Gali.atix,   Ai,ni:uT.      Considcrdtions  on  the   Carrenei/  dud    l>ankin<i 

System  of  thi   United  States.     Philadelphia,  ls:>l. 

.     Suffi/islionn  on   thi    Jionks  and  C'arreney  of  the  several 

United  States.     New  York.  iS41. 
(tAIU.ani),    N.    SiintKV.     h'dnks,    Ihmkers  and   Bdnkiinj   in    Cdnndd. 

Ottawa,  18;io. 
(compiler.)     Report  nf  Diridends   remaining  iinpaid 

(ind  Unrldimed  liolanres  in   Chitrtercd  Jlinks  of  the  Dominion  if 

Cdmidd  for  Jive  i/mrs  and  njnrards.  prior  to  'Mst  December,  18i*L'. 

Ottawa,  is!i:;. 
(toumci.i.v,  .7.  J.  and  Sixci.aiu,  R.  V.     /idnks  dnd  Bankin;/.    Ottawa, 

18<»L'. 

Haci'i:,  Gkokok.  "Piank  Reserves"  in  Journul  of  Canadidn  Bunk- 
ers' Assoeiatiiin,  vol.  i,  pp.  107-111. 

.     "  Banking  in  Canada."    Proeeedings  of  the  Concention 

of  th(  Ainirican  Banker.^'  Assm'intion.  New  York.  1881,  ]>{).  HS-Kto. 

'. .     "One  Name  Paper."     fbid,  1884,  pp   64-7<i. 

.     "The  System  of  Branch  Banking."     Ibid,  \SS>A,  pp. 


7;i-si. 


-.     Itiinkin;/  in   Uonddii,  its  Progress  and  Derelupment  (a 


lecture  reprinted  from  the  Shareholder).     ^Montreal,  18S4. 


I 


Apjirndi.r  1  I' 


473 


Hamilton,  Ai.rvA.s-hi:,:.  lie,,nrl  ■.„  a  Xalnnml  /;«„/,■,  ]:uh  December, 
I71MI,      r<V/<' Ci  AUK  AND  Hall,  HUiini. 

HiNcK-;,  Sii;  Fkancs.     lir,„i,u's(-,i,ir.t  of-  his  I>,il,Ur   f./f:      Muntn-n] 
I  SSI. 

Ill-NT,  \VAsiiiN(iTON.  "LettiTs  au.l  llcimrts"  fium  the  mlire  of  the 
romptrolloroftlu' State  of  New  York,  iu  ILnJc  St.itistu's,  lS4il- 
">ii,  ;;i,va,V.'//,-/m.v,  l.v^  .Scv^'-;//,   7/.    H.   h'.rer.    l)ocumu,t  No.  i;S   nn 

Joiiniiil  "f  the  Canoiliaii  Puiiikrrs'  Asxnriation,   vol.  i,  no.   1-2,  Mon- 
treal, ls!i;;;  no.  :;-(,  vol.  ii,  no.  I.Toronto,  t8iM. 

JoHi-wil  or  the  Hoiixe  „f  A.ss,'m/>1>/  of  th,    Province  of  I.mrer  Cinnda 
I7'.ti'-!s:;f;. 

Jonrnifl  of  the  ll^.u^ie  of  Axsernhhi  of  the  Pfocimu  <.f  Xom  Scotia,  ]8::'>- 
istit;. 

Jonnoil  of  the  Honne  of  AHuemhly  „f  the   I'mdnce  nf  Neip  Br"„sirick. 

Fredericton,  Isi'ii-lstiT. 
Jonrual  of  the  Jfoose  of  Asxrwhli/  of  I'ppei  Cntai'o.     Kingston,  ISi'l. 

York  and  Toronto,  IslCi-Is^o, 
.Journal  of  the  J/ouxe  >'f  AK^emlili/  <f  Cpiier  Can-id, t,  IsKI-lSiM,  type- 
written copies  in  the  Legislative  Lilirary  at  Toronto,  and  MS.  in 

Library  of  Parliament,  Ottawa. 
Journals  of  the  House  of  Co)nnions  of  the  D.iniini"n  of  Canada.    Vols. 

i-xxvii,  Ottawa,  ISiiS-Lso;;. 
Jonmals  of  the  Lenislatice  Ass,mh/!/  of  the  Pn>rince  of   Canada.     L'd 

volumes,  1S4I-1S(;g. 
Journal  nf  the  Lef)i.4atice  C'unril  of  the  I'rorince  uf  ifppir  Ctnada. 

Toronto,  ]s:'.7. 
Journals  of  the  Senate  of  the   Dominion  of   Canada.     Ottawa,    1S(17- 

ls!i:;. 

Kno.v,  .foHN  .Tav.     Annual  lieport  of  the  Ci'in/itroUer  of  the  Currenci/. 

Washington,  lS7'i. 
LiNDSEY,  CiiAKLKs.     The    lAfe  and   Times  of  Wm.    Lyon   Ma.-kenxie. 

Toronto,  IStiL'. 
Mackknzik,  William  L.     Sl.-etche&  of  Canada  ami  the  United  states. 

Lond(jn,  IS:!.".. 
MacLkod,  II.  I).     The  Tlieorii  and  /'rarti-;  -•;'  /lankinf/.     Fourth  edi- 
tion. London,  1S8(1. 
Maiutn,  H.  ^[oNT(iOMr:uv.   Iltstori/,  Stalistirx  audUeoijrajihti  of  Upper 

anil  Lower  Canada,     r.ondon.  ls;!S. 
(M(  VicKAK.)     Hints    on    Hanking,    in    a   Letl-r   to  ,v    Gentlcnian.    in 

Alhaiiji,  bji  a  Neic  Vurker.    New  York,  1S27. 
Mi'iiitari/   'Times.  Trade  /I'eriar  and  Insurance  CJironicU\  Thi.     Vols. 

i-xxvii,  Toronto,  lSf;7.ls!i4. 


474  The  Canadian  Hanking  Sj/sicni,  1817-1800 


I  i' 


^lonciAN,  IIknuv  J.  Thf  Dominion  Annual  lii ;/ist(r  iin>l  lieriiw. 
Montreal,  ISTS-lSSd. 

MrRDOni,  I>KAMisii.  .1  Jliatorii  of  Nora  Srotia  or  Ariitlia.  Hali- 
fax, IStiT. 

Noiii.,  OcTAVK.     Lrx  liamiiteK  ()' Kiidxnion  en   hhiropi.     Paris,  ISSS. 

rAi.cn.WE,  W.  H.  Inoi.ix.  Annh/Kis  of  the  Minutes  of  Kridenrr  taken 
before  the  Selict  Cuminittre  of  tlic  Ifonur  of  Commons  mi  lianhs  of 
[itnue,  IS7"),  wit/ia  sii,  rfioi,  fr  ')n  tliR  Kridmre.     London,  I'^TCi. 

(editor).    Jfirlionari/  of  I'oliticai  Kronon)//.    Lon- 


don and  New  York.  1S!I4.      Vi(l(  W  w.kku  jionl. 
VarJiamentarji    Debotrs,  Dominion  of  Canoil.i.     Vols,   i-iii,   Ottawa, 

1S7(I-1S7l'. 
I'rorincial   Sfaf'i'eit  of    Ciinaihi,    The.     i\in'_'Ston,    lS4i,    1S4"_',    1S4:!; 

Montreal,  1S4."),  Is4i>,   1S47,   1S4S,  ist'.i;  Toronto,  1S5(>,  IS.M;  Que- 
bec, 1S.">;5,   is:i4,   is:i:>;  Toronto,   1S.")(;,   1S.)7,    ls:)S,   IS.V.l;  (,)iiebec, 

ISiid,  i,s()l,  isiiL',  isi;:;,  i,si;4,  1m;.");  Ottawa,  1S(;(;.      ' 
Vrorineiitl  Slututis  of  l.oieer  Cinada.     Vols,  i-xv,  (.inebeo,  179l'-1S:'>(!. 
Public  Acrmmfs,  Vriirince of  Caimdii.     is.")4-lst)i*. 
Rak,   Gkougk.      Tlie   Coi/ntri/   Hitnkrr,   hi^  Vlienta,  dires  and    Work. 

Fifth  edition,  London,   jSSfi. 
Report  of  the  Select  Committee  on  the  CauKi.t  of  the  /'resent  Deprenxinn  of 

the  Manufitet>irin;i,   Mininf/,    Conimrreial,   Shipjiini/,  Lumber  and 

Fixhinfi  ftiterexls.     Ottawa,  IS7(>. 
Jierixeil  Acts  and  Ordinances  of  Loirer  (Jiinada.     (Jneliec,  \M'i. 
RouKinsoN,  W.  .1.     A   brief  historical  sketch  of  Canadian   llankin'i 

and  Ciirrency,  th(   fjOirs  relating  thereto  since  Confederation,  and  a 

Comparison  irith  Uritish  and  America n  Si/stemi.     Toronto,  ISSS. 
Scott,  Su;  Wai.ti'.k  (^Lu.\cl^  MAi.AtiitoWTiiKK.)     Thne  Letters  on  the 

Proposed  Cliamjeof  Currenei/.     Ivlinburfih  and  London,  ISi'd. 
ScRoi'E,  (4.  Pori.KTT  (editor).     Mi  mnir  of  the  Life  "f  the  Ui'jlit  Honour- 

abli  Char/is,  Lord  Siph  nham,  iritha  Xarratin  of  his  Administration 

ill  Canada.     Lomlon,  1S4I. 
Sessional  Papei's,  Duminion  nf  Canada.     Vols,  i-xxvii,  Ottawa,  P-^iiS- 

isy:;. 
Smith,  Adam.      Thi    Wc'iUh  of  Xntions.     Seventh  edition,  London, 

17!t:! 
Smith,  (ioidwin.     Canada  and  the  Canadian  Question,     New  York, 

1S91. 
SoMKUS,  UoitKKT.    Thi  Scotch  Danks  and  System  of  Issue.    Kdinbur^h, 

IS7:;. 
statement  of  Hanks  >tnder  Charter,   1S(;7.]S!I4.      Vide  The  Canada  Cu- 

-ette. 
Stiitemeiil  of  the  Affairs  of  the  late  Jlmk  of  I'ppcr  Canada  at  Kini/ston, 

taken  from  Authmtic  Documenls.     Kingston,  1S4(I. 


Appetvll.r  I  V  _^,v- 

Pronur  .,f  ^o,a  sro/ia.  The.     \o\.  ii,  isu:,.isi,;   Halif./.  h- 
is;;."),  '  ^'    ''^-'-J'^>',  Halifax, 

V."      ,  -M    :r'!  ;  .n     '  '  •"'  '''■''''  ^^^^'""  ^^'^  Par!ia,nent, 
Y  V       ,;;-'''  "'■'"""  "^''  P'^'"^>"''"t,  Kingston,  Is,:,; 

l^''i    IS   ^    ,  ^;,  ^'^^"'  ''"'""  ^"^•'   ^-''i-n-t,  York 

,.:?  !p'    '    ^"^•"^^''  ^f'^^'""   "tl'   Parliament,   York    I,s;ii    |s;-> 

is;;;    k1;;  ^^;;;"' «^««"-  ^^'"'   P-.|ia.„ont.  Toronto.  ls::7,  ,s:;7, 

''''7Wr:.r"'    'i'"!'"  V'""'""'^'  '"■  * '^""''^^  '"'^-'  *'-  <''^Pitulation.- 
JS((.     (.iiu'hec,  1S77. 

B  11    Act.        Ilnd.    IS,,,. IS,,,.     (i,„bec,     ls,„.     Another  title   is 

IheCrcMilat.onoftheArmy  Hills,  with   .some  remarks  upon 
the  \\  ar  of  ]S|,."  ' 

TiiOMrsoN,  S.     (;au.uH.n,  Mirror  of  Par/i,nnn,t.     Qiiehee    ISflO 
loi)..    A i.n:..:,,.     a,,,,;,/  Hnh-.v  to  the  JonrnaU  of  tin  Ifou^r  of  Ahs,;,,- 
hfn  .^t  th,'  lote  Prorinre  of   I  ,,prr  Camda,  1S,.-,.1S4I,.     Montreal. 

•  ^^''"<^>''i^  /'"'«.''  /"  (he  Jonrnoh  of  the  Legislotire  -Uscm- 
hh/oj  Cunailo,  1S4!.!S.-,1,     .\[,,ntreal.  is.V,. 

•  The  same,  lso2.|s(;(,.     Ottawa    is,;,; 

Ijppa- Canada   Ou-ef,   The.     Vols,    i-xiv,  York  and  Toronto    Is-'7- 
IS40. 

Y.^.v  Hfuivv,  Mm:,  IN,  Jfe.'isaff,  of  //;,  Knelleney.  the  (lom-oor.  on 
the  ,vihi.,'t  of  Pyaol-H,  with  the  plan  x,i,i;/eHted  to  place  theui  under 
proper  regulations,  seeore  the  pnhlie  from  loss  bi/ failure,  and  fop. 
ninh  a  Kouud,  well  r,;juhited  curreneij,  luadr  to  the  A.ssewl^h/.  Jan". 
<trii  ,.!//,,  IS,.,.  Albany,  Is,!,.  (C.niains  Joshna  Fornian's 
ori^'inal  proposal  of  a  Safety  Fnn.l.i 

W.ujNKi;,  Dii,  .Ai)ni,i.|i.  Die  Geld,  am/  Credit-theorie  der  /Wr.ehen 
l>itnki(''te.     Wien,  is,;,. 

•     "'Hm-  Kreilii  luul  das  Hank  Wesen."     In  SciiiiN- 

nriio,  (i.,  llai,dbu,'h  der  /'oUtisehen  (Kkonomie.  Tiihiiigen,  isito, 
vol    i,  pp.  :;:,7. lini. 

WAt.KKH,  \\.  I-;.  The  I'anodian  Si/steo>  of  Hanking  and  the  Nntionat 
Itanlcing  System  of  the   I'nited  States.     Tijronto,  IS!,ii. 


! 


47(3 


The  Canadian  llnnkimj  Sj/sfrm,  lSl?-]8f 


800 


-.    "Hanking'  in  Caiiiula,"  in  Wor/it'i,  Cum-eM  of  Finan- 

'^^  '"""«"n<  Bankern'  Assodatiou,  vol.  i,  ,,.  1  et  so/. 

,>,-r~r^^      "Hanks,    Cana.la,"    in    I'ai,.;i!avk,     Dirtionary    of 
y  olinftji. /irouomy,  m,.  Kio-Kc  ' 

W.HXKK.  JoM.v  D..:  Wn-T.  7'en  p7r  eeut.  T,rr  on  Sfofe  liauk  NoUs  and 
(urrennj  h.rprdin,ts  a.d  in  tlu  f'ri.is  of  IS!.;;  {Speech  in  the  dou^e 
oflupremUatuesofthe-ldJune,  18!M).     Waslun^ton  jsm. 

Wk.r  I.  KASK.  The  Law  and  Practice  of  Ilau/.-u,:;  Corporations  under 
Dominion  Acts.     INfoTitreal,  Isss. 

;•     ^^^'•>"»^-<indum  on  the  liHl  respertin;,  Banl.»and  Dank, 
inu  noir  befoiv  Parliament.     Montreal    iSMd 

W.HT.vKv.  I).  K.     The  Suffolk  Hank.     Caml.ri.l^.e,  isr.s 

\\  ii.Kii:,  1).  H.  "A.lvantaKes  of  tiie  Canadian  JJank  System  "  The 
horom.  vol.  xiii.     New  York.  ISi.i',  p.  :i24  et  neq.      ' 

\\  I1..0.V,  .Tamks.     C'ipital,  Currency  and  Bankin.,.     London,  lS-17. 

AVo..rorr.  LmvAKolrompiler).  The  National  Bank  Act  and  other 
Laws  relating  to  National  Banks.     \Va.sliin<non    iss-' 


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Id  111' :ulillc-.sril  at   N.i.  .">  Ilc.uiitl  Stli»t.  Hi>?<tci||,  .Mass.i, 

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iiittTist,  a;  d  lor  tlmroii^jh  rivirwsol  important  hooks,  lowliiih  .i  ipi.trlir  part  ol'  its 
spaiu  is  rLUuLirls  divoled.  t.  and  id  prisinlalions  ol  tlir  K""*'.''  rulitiions  of  the  world  liv 
reioi,'ni/i(r.i",thoritiis  are  .i  proiniiunt  Icilnri.  and  Itildical  stiidv  ncfivis  .i  larpe 
nua^nri' ol  alUnlion.  Nn  Ihcoloi^iial  piiiodii  al  in  tin-  laii),'iiaK'i' lias  a  stron^J^•r  corps 
of  contrihiitors.  and  iioni-  is  iiiou  imlispcns.ililc  to  the  liberal  minded  cler^v  and  the 
thonnhtfnl  laity. 

<;onti:nts  or  No.  x.  ji'm:,  ihiu. 

llaiir  s  New    re-t.imeiil  Criticism  in  the  The  Episcopalian  I'olitx.           %V.  KluKi'S. 

I. iylit  ol  Itie  Present.     II    lIoiT/.MVNN.  The  I'aiiline 'reachiiiH;  ol  the  Person 

John  kelpins,  I'ielist.         I'.  II.  NVii.i.i  ams.  of  Christ.                                            t).  Com  . 

rile  Mo\emeiit  tor  Kelijjimis  lajn.ilitv  The  Sinnilicancc  ol' I'essiinisni. 

in  I'.mjl.iml.                             IC.  I'okki  i  r.  K.  .\.  Iloi.i.  \nii,  Ju. 

The  Kelinions  .itid  the  Historical  I'se--  Dt'tmnraev  and  the  I'oet.      N.  P.  ('.ii.-m.an. 

of  till'  llible.                  I'K  A.NK  C.  PnU  I  1  X.  The  Hook  of  Job.                                     II,  DniN. 

<'«»NTKNT.S  or  No.   XI..  ,SEI*TK.'>I  IIKU,  IKIM. 


Iniversal  Keliuion.    JoM.v  NV,  Cll  \i'U  ICK. 

The  InllmiKeof  l'hilo^o|)hv  on  i.reek 
Social  Life.  Ai.i m  i.  \V.  IIi.nn 

Animisin  and  Teutonic  MytholoKv 

P.   I).  ClIA.Nri  I'll.   III.  I.  A  SAISS.WI.. 

The  Koots  of  .•Vyiiosticisin.      J  am  is  Si -i  ii. 


Cionl.ino  Itniiios  '  l';.spiil>ioii  of  the  IlcaHl 
I'rinmpli.uil.  "      Wii.i.iam  K.  Tiiavkr. 

The  Service  of  Worshili  and  the  Service  of 
Thoiinlit.  CiiAUl.i.s  1'.  Doi.K. 

'file  Kesnrrection  of  Jcsns. 

.\i,r,i;KT  K.  VII. i.i. 

Truth  as  Apprehended  and   ICxpressed  in 

.\rt.  ('..    f.    C.I.MNC. 


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MiiKiiiso.N,  London. 
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Tassy,  Uoumania. 
Matthew  Arnold's  Poetry  from  an  Ethical  Scandpuint      AnuvnA.M  I'i.i;.\nkii, 

Louis\ille    K.\. 
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Indice  per  nomi  d'  Autore  dal  ,.    Oennaio  al    ,,  Dicem- 
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La  TcM.ria  del  valore.     Sa-rjo  bibliografico.     (L.  Cossa.) 


ECONOMIC   CLASSICS 


I.IHII  11    IIV 


W.  J.   ASHLLCY,    M.  A. 

Professor  of  Hronoiiii,-  Hislotr  in  H.vv.vii  L'liiii r^^itv,  laic  t\'llo',c  (>!  I.iiuolii  Collet!,i\ 

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Adam  Smith,  IJifAUPn,  and  Mai.tih  • 


•,(()NOMI-TS,    HKOINNINC    WITH 


These    voluiiKS  are  (lesij{iic<l  iiriiiiMrily  Id  nut  I    the    nr. 


il  needs  <if  elasse^ 


iiiii\  ersities  ami  colleges  dijjapeil  in  the  stiuly  nl  the  di  \  elciiiiiieni  nl  inodeni  ecoiioiiiie 
theor\  .     The  tirst  two  volumes  are  now  ready,  thi'  other  in  active  pri  paratioii. 

Select  Chapters  and  Passages  from  the  "Wealth  ot  Nations"  of  Adam  Smith, 
1776.  — Hy  careful  selection  and  excision,  the  attempt  has  been  niadi'  to  present,  in  a 
volume  of  some  iSo  small  and  pleasantly-printed  pages,  the  whole  of  .\dnni  Smith's 
economic  philosophv.  The  dilTerencts  htt ween  the  first  edition  and  the  third,  the  onlv 
one  into  which  Adam  Smith  introduce<l  any  ehanjies,  ari'  clearly  indicated. 

The  First  Six  ChapterB  ot  "The  Principles  ol  Political  Economy  atid  Taxation" 
of  David  Ricardo.  1817  These  are  the  chapters  in  which  Kicardo  states  his  generid 
economic  lheor\-.  which  he  applies  in  the  rest  of  his  works  to  various  pr.ictical  ([ues- 
tions.  Much  ol  the  argument  t)f  the  celebrated  chapter  on  Value  was  rewritten  in  the 
third  edition  ol  1S17,  and  there  was  an  importatit  itisertion  in  the  chapter  on  Wages.  Ml 
such  changes  and  additions  aie  here  for  tlu-  lirst  time  indicated 

Parallel  Chapters  from  the  First  and  Second  Editions  ol  "An  Essay  on  the 
Principle  of  Population,"  by  T.  R.  Malthus,  1798-1803.— That  Mallhus  adopted  .1  very 
ililierent  iiosition  in  the  second  edition  of  his  essay  has  long  been  recogni/ed  bv  com- 
pet'. at  critics.  Hut  the  lirst  edition  is  inaccessible  to  most  readers.  The  two  versions 
of  his  teaching  are  here  tor  the  first  time  printed  side  by  side,  so  as  to  facilitate  com- 
parison. 

II.  Kkpkints  Ml- oi.DKi:  Enci.i.sii  wokks,  sn  m  as  tiiosk  dk  MrN.Ciiii.D  and 

Pktty. 

These  are  now  recogni/ed  as  having  cspeci.al  significance  for  the  i)rogress  ol  eco- 
nomic thought,  but  are  iiractieally  inaccessible  to  the  ordin,ir\-  student.  While  the 
reprints  will  be  "popidur  '  in  the  best  sense,  and  will  not  juolcss  to  be  lac-similes, 
they,  like  the  other  volumes  of  the  series,  will  be  proihiced  in  a  pleasing  external  form 
which  will,  il  is  hojied   commend  them  to  the  economic  biblio]ihile. 

III.  TrANSLATImNs  III     LMI'idiTANT  IDllKMiN    ri!K ATI.iKS. 

Since  the  writings  o  Dr.  Ingratu  and  I'rolissor  Cossa.  the  names  01  many  of  these 
are  coming  to  be  generally  known  by  economists  in  Ivnglish-speaking  lands,  but  they 
are  still  rarely  read  owing  to  the  barrier  of  language.  Among  the  oUler  writers  under 
consideration  are  Koscher.  V<in  Thiinen  and  Hermann.  To  these  will  be  aiUled  a  few- 
translations  from  more  recent  authors  of  eminence 

The  editor  will  sediilouslv  avoid  partisanship  or  the  indication  of  jiersonal  opinion 
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typograjihical  devices  di\  ergencies  between  editions  when  they  are  of  serious  moment. 

The  volumes  w  ill  vary  in  number  of  pages  from  10. •  to  .'.(li,  but  in  other  respects  will  be 
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liavc  c.u 
lite  and 
hi-  has,  i 


"ri.al    In.sjroR.   aiul    icU-al   .Soiiiill.sm 


M.XC.MILLAN    &   CO. 

')''    I'Tl'TIl    .WJCNTK, 


N];\V    VOKK. 


WORKS    BY   \V.   CUNNINGHAM.   D.  D. 


THE    GROWTH    OF   ENGLISH    INDUSTRY 
AND   COMMERCE. 

r.  —  DrKiNC,  'nil'   Kaki.v  and  Middmc  Aces. 

(  lotli,   Kvo,  ijtll.OO. 

It  is  tlu' "-tiicU  of  DiikI'"-''  li'^t'Tv  Iroin  .1  tu«  ■-l.mdiMiinl  The  antlidf  (.cnu'tTus  liiiu- 
■<fll' iiiily  with  till' wiiiiilti  liiNk  VI  loiniuiit  nl  I'.iij;li-.li  loniuuri'i-  :iiul  triuk-  iv  all  tlieir 
lirnichf"  A  siibjeit  wliiili  wmild  In.  drv  in  sonic  liaiuls  provi'S  Cascinatinn  umler  Mr. 
I'unniuHliani's  |iiii.  'I'lu'  luM.k  is  tull  nl  in^tuutinn  Ini  llic  Aniiriian  linsiiuss  man,  as 
•<liu\\ini;  till-  iinniutalilf  lau-  lli.it  inukilii-  llu'  nptratiun--  ol  Unitiniatf  tntcrprisi-. 
Sonic  111  tlif  Lilies  tliiiKiiiylilv  ami  alily  iliscnsscil  arc  "■  Harlcr  and  l-acilitits  tif  J-^x- 
chanj^c.  ■  •■  (.11111  jict  it  ion.'  '•  dpi  tali '•ts.'  '•  Mercantile  Ijiqiii  ii  ism,  "  and  "  WciKlils  ami 
Mcasnn—    "      The  in  'tc-  .u  c  rii  li  and  aluindanl.     N    \  .   Im  kn.\i.  i  ii   Com  Ml  Kcl. . 

II. — In  M()1)i;kn  Timks. 
<'loiii,  «vi>,  $i.r.o. 

■flic  u  ork  is  cli.irai.tiii;  i'd  I".  };i  cat  u  idlli  ui"  trcalnicnt 

In  cvirv  part  ol  hi>  subject  .Mr  Lunninuliain  lias,  il'  not  an  e.\li.Mi-.ti\  i-,  at  aii\  rate  a 
VI  ry  siirprisini;  conunand  ol  the  Hn.ylish  literal  11  re  iiertainin.n  to  it.  not,  liowi  ver,  ol'  the 
I'lencli  and  I'lcrni.iii  literature  on  similar  movi-ments  abroad.  .     .     . 

Still,  when  cvcrv  ilcduction  i-  made,  tlu- uorl;  is  a  remarkabli  achievement.  It  will 
liut  the  student  on  tlu-  tr.uk  ol  the  c\  idence  for  lach  ol"  the  h  mid  rid  ami  one  tojiics  w  ith 
u  hicll  it  deals  il  will  presi-nt  oiiinioiis  to  him  u  hich,  if  far  I r 0111  In- inn  linal.  at  any  rate 
deserve  .ittention  .ind  s'iinulate  thoii:.;ht;  and  npoii  .1  ver\-  l.irue  caiitle  of  the  i;roiind 
covered  on  tin-  ei:..;lit  ■cnlh  iiiitur\  and  the  e.irlv  decade  s  ol  the  inesent  it  will  for 
some  lime  rem.iin  tile  I  iremosl  .luthority.     Tin:  N.\tion. 


orTi.iNi'.s  Ol' 
ENGLISH    INDUvSTRIAL    HISTORY. 

Ily  W.   ('i'.\.\i.\(.ii.\M.   1>.  1).,    Iriiiity  CulK'.i^r,   c  amlirid.-c,  ami   I'J.i.i;n 
.\.   .M.\c  \  K  riit'K,  (iftiirtiin  ( '(iIIcl^c. 

.lust   Iteinlv       I'inio.  elotli,  $1  .">«>. 


A  Tiiiic-ly  and  I'raclicul  Work  on  the  Currency, 

HONEST    MONEY. 

I'.y    .\kIIII   K     1.     l'iiMi.\. 

I'^liio.  elotli.   $1.00. 

.\  work  dealing  in  a  rational  .md  common  sense  w.iv  with  llii'  requirements  of  an 
liotiest  nuiiie\  .  criticising  the  merits  and  delects  ol  various  ]iro)iiisals  lor  its  betternieiit, 
u  ith  .111  outline  of  a  in  w  monetary  system  thai  .seems  to  meet  the  reiiniremeiils  .iiid  eor- 
ri'it  e.sistiuw  faults. 

MACMILLAN    ^Sl   CO. 

66    IIFTH    AVKNLH.  NEW    YOKK. 


THE  JOINT   STANDARD 


l''.'INi  II'IKS 


"^     III  i  All     11  !   I    \I. 

'■ "•»".1M..  ■^n.    iTi,...,  *,.,„,  „,, 


\M'     TIIK     Md.NKTAln 


■^'r.  Helm  s  hiiiik  is  on,- .11  ii,,.     i  ■  ■     -s, 


•Mr.  Ilcl 

Sl'CI 


AX    INTRODI'CTION 


liJ  Till.; 


STl-DV   OF   I'OI.ITICAL    EC(1\OMY. 

I>v     I.I   ici     (    MSSA. 


iw;iNi, 


AN'  i:\i  ii:i.:i,v  im.w 


'•riDI-;     I'o     liii 


;i^^Vi;ilTKN-  Tuin,  I  i,,TI.,v  ui     III, 


Tr,n,M,,h.,l    umI,    ,„.■   .nll„„-s  .anc„„n  .„,!    a..i>.a,u-.-, 

'A'   I. "TIN   Dvi-  10     M,    \^ 


''■'""   '-iH'     'iiKitMl  Ualia:i 


I'in.o.   .loll,,       |.,.j,.,.,   !fi.j  ,;„, 


niK  HISTORY,  PRINCIPLES  AND  PR  VCTICF 

OF  BAXKIXC;. 

i    V()l>.      •f.i.OO. 

Ilu   «'"1^ -niu, . M. „,,,-.,,,.„  .l,„K,,„l,nuntn„,s,, a,,        S,■^^„^:.,. 


-MACMILLAX    .S:    CO. 

66    FIFTH    AVi;MK. 


M-\V    \'ORK. 


Qnggenheiiner 


Ij/eil  &  Q 


/vV:^  /)/c(iSi'(/   fo 

rciuhi's  of  f/iis  vo/iiwc  th 


0, 


(Vnu)uncL'    U)   th, 


ncss  /()  scn'L'  t/i 
f/u 


cir  rciu 


//- 


(•'in   ni  any  zcav    fj 


a 


production  of  a    Hsitiuo   Card 
printed  volume,    of  udiich    th 


oni 
to 


(I  speciuiejL 


IS    IS 


QrR  JjEPARTMEKTs 


pRLXl  IXG. 

JOB  PRIXnx 


HOOK-  PRIXTLW;, 
CA  TAL OGi  ■/■:  PAVXTAVC. 
l.AHHL  PRIXriXC. 
h'AIl.ROAl)  Ph'IXTlxc;. 


s//oir  cAA'ns. 


TOBACCO,    CAXGOO/KS 

'i'i</  other  LABELS. 
•ilU'l-RTLSLXG    CARDS 
/>OX/)S,  CIILCKS,  Etc. 

ijOOK  />/xj)/X(;. 


^f/SCELLAXLors   />'/X/)/XG. 
QIRD   JyVGRAnxc. 


li /■:/)/ )/X(;. 


f^rTAll.  1)1- PART. Ml-:. 


h'ECEPTlDX. 


r/S/T/XG. 


yy. 


'o<)  Last  Jlaltimorr  Street. 


]p:c//A.\/L .//.    /;/,/',/ A' /-.i/AA-/. 

Cor.  Lombard  cuid  Liberty  Sts. 


AMERICAN    ECONOMIC    ASSOCIATION 

Organized   a.   Saratoga,   September  9th.  .885. 


OFFICERS. 

FUAN.  I.    ,\,     W.M.KKl:,    LL   0 

'■'■'^'-i'-  r.  I»im;ai;,  I.L.  J; 
I're.'iidf.ut  : 

•f^"'N-    f'.    '1  AUK.     {'I,.    I.. 

•f\>"-  H.  <AMii:,.„,   LL.  /,. 
AiMiiri:  T.   II.mm.i.v,   .M.  .\. 
"K'Uic,].   \V,   Km, ;„.,._    PI,    ,, 

St.i'1'i'Uiri/  : 
Ji:i;k.miaii    \V.  .Iknks.    I'l,.  J)., 

Cornell  riiiv.'rsity,  Itliacii.  .\.  Y. 

r'i;icni:i;uK   11.    IIaui.i;v,  .A.  M., 

Nl  IVarlStr....t,  New  York  City. 

PUBLICATION    COMMITTEE. 
I'-   H.   I>oui.:us,  .\.  M.,   CA.uV^ian. 

Smith  (V)lloj.'(',  N'orf,l,aiiij.toij,  MiisK 
''.  W.   Fakvam,  .V.  :\i. 

^v.  ,r.  .vsni.Kv,  A.  :\r. 

l>Avis  K.   l>i.:ui:v,  Ph,  j). 
Wii.i.iAM  A.  ,Sorn,  I'll.  I). 


MACA.irrAN  .^  Co..  m  Fift,,  Aven„e,  X.w  YnVk  (Itv 


'i'l    I'e   aildrossed    t(. 


EXTRACT    FROM    THE    CONSTITUTION. 
AllTICLK  JV.—MKMHKksnip. 

throe  dolhtr.s.  and  afUr  tlie  fir^r  year  n,ay  continue  a  memler  ? 
pay.ng  an  annual  tV,-  of  tlnve  dollar.^.  On  ,.avniont  0  if  v 
dolkKs  any  person  may  hecon.e  a  life-n,c.n[.er.  e.vc'mpt  fron>  ar.nual 

c.t^',?^~f Tl'Il>"A?'''"'r'''''  '';V"'!'""'  ^'"■•"-i-*'  "II   reports  a,.,l  r.nhli- 


PUBLICATIONS  OF  THE  AMERICAN  ECONOMIC  ASSOCIATION. 

Tlio  sevoriil  volimifs,  Iioiiik!  in  cliitli.  will  1k'  sent  pust-paid  at  i*.')  t'lu-h; 
any  two  for  $\f;  any  lliii-e  for  $1:!;  any  fniir  for  $17;  any  livr  for  ^'21;  any 
kIx  for  JlT);  any  seven  for  !?■_'!•;  any  eiirlit  for  ii*.'!:!;  all  nine  for  s;',;,  and  in- 
cluding snliscriiition  to  Volnnic  \  for'ril.  Any  hound  volnint'  will  lie  sent 
postjiaid  to  inenilirrs  for  "•">  cents  in  exclianiic  f(,r  tlie  unbound  nuinliers, 
if  returned  prepaid  in  ^otid  conditiipu.  ( 'opies  cm  also  he  furni.slied,  hound 
in  half-niorocco,  at  "'H  cents  per  volume  additional  tn  the  prict>  in  cloth. 

VOLUME  1. 

No.  1.  Report  of  the  Organization  of  the  American  Economic  Association 
By   Kii  n.\ui)  T.    l\i.v,   IMi.    !».,  St-cretary.     Prire  '^{)  ri'nts. 

Nos.  2  and  3.  The  Relation  of  the  Modern  Municipality  to  the  Gas  Supply. 
r>y  En.MCM)  .1.  .Ia.mks,  Ph.  I>.      rnc  1')  ctntx. 

No.  4.    Cooperation  in  a  Western  City.    V>y  Ai.ukkt  Suaw,  IMi.  D.     I'rirt 

7")  I'ents. 

No.  5.    Cooperation  in  New  England.    V>y  Kd^vakd  \V.  Ukmis,  Ph.  I)     /V/Vo 

7'"'  I'oilx. 
No.  6.    Relation  of  the  State  to  Industrial  Action.     By  Prof.    IIknky  0 

Aka.ms,    I'll.  1).     I'rii't'l't  ceiitfi. 

VOLUME  II.    Bound,  $5;  Unbound.  $4. 

No.  1.  Three  Phases  of  Cooperation  in  the  West,  liy  Amos  (;.\Vak\kk,  Ph.D. 
Price  7-">    cetiln. 

Nc.  2.    Historical   Sketch  of  the  Finances  of  Pennsylvania.      P>y  T.    K. 

WoKi  iii.NOToN,   Ph.    !».,   With  an   Introiiuction  liy    HiiiiAiii)   T. 

I'j.v,   I'll.  ii.      Pvice  7-')  cciitn. 
No.  3.     The  Railway  Question.      By    Kdmi-nd  .1.  ,Iamks,   Ph.   D.      Price 

7">  I'ents. 

No.  1    The  Early  History  of  the  English  Woollen  Industry.     By  \V.  J. 

AsMi.KV,  M.A.     Prire  7'>  I'cni.s. 
No.  5.     Two  Chapters  on  the  Mediaval  Guild?;  of  England.     By  Kdwi.v  U. 

A.  Ski.|(;m  \s,  Ph.  I).      I'rtre  7.")  rtutx. 

No.  6.  The  Relation  cf  Modern  Municipalities  to  Qwfls/-Public  Works.  Being 
a  Report  of  the  < 'oniMiittee  on  Piil)lic  Finance  t(i  the  Council  of 
the  .\ineriian  Kconoinic  .Association,  composed  of  il.(".  .Ada.ms, 
Chairman:  (JiioiaiK  W.  Knioiit.  Davis  Pi.  Dkwkv,  Cmaui.ks 
.MooKi:,  FuANK  .1.  (iooUNow  and  AiiTiiii:  YA(ii;i!.  Price  ',h  cenU. 
VOLUME  III. 

No.  1.    Three  Papers  Read  at  Meeting  in  Boston ;    "Statisties  in  Coiieues," 

liy  C\ni;oi.i.  D.  Wkkjut;  "Sciciojo^'y  ami  I'olitical  Kcononiy," 

hy  F.  H.  (;[i)i)iN(is;  "Die  Lej:ai-'l'ender  Deci.siuns,"  by  E.  J. 

J  A  Mies.     Pvire  7'")  cents. 
No.  2.    Capital  and  it:  Earnings,  hy  Prof.  .1.  B.  Ci.ai:k,  Smith  College. 

Price  7.">  cents. 
No.  3  consists  of  three  parts;     "The  Manual   Laboring  Class,"  by  (Jen.  F. 

A.  Wai.ki-.u  ;  "  Mine  Labor  in  the  llockini;  Valley,""  by  F:.\V. 

Be.mis,  Ph.D.;  "Bepiirtof  tlie  SecoiMl  .\nnual   .Meeting,"  by 

Uii  MAUI) '1'.  Fi.v,  Secretary.     Price  I'l  cents. 
Nos.  4  and  5.    Statistics  and  Economics."  By  Ukii.mos-d  Mavo-Smitm,  A.  M., 

Columbia  ('olletre.     I'rice  ~'^  cents. 
No.  6.    The  Stability  of  Prices.     P.y  Simo.s  N.  Patticn,  Ph.  D.,  University 

of  I'ennsylvania.     Price  7n  cents. 

VOLUME  IV.    Bound,  $5;  Unbound,  $4. 

No.  1.  ContributionF  to  the  Wages  Question:  "The  Theory  of  Wages," 
by  Sri-AiiT  Wool),  i'ii.D.;  "Possil)ility  of  a  Scientific!  Law  of 
Wages,"  bv  ,1.  P..  Ci.AiiK,  A.  M.     Price  7."t  cents. 

No.  2.    Socialism  in  England.    I'.y  Sidnkv  Wkius,  LL.  B.     J'rice  7.")  cents. 

No.  3.  Road  Legislation  for  the  American  State.  P.v  .Tkkk.miam  W.  .Ik.nks, 
Ph.  D.      Price  7".  cent.-. 

No.  1    Report  of  the  Proceedings  cf  the  Third  Annual  Meeting  of  the 

American  Economic  Association,  l)y  Uuiiaui)  T.  Ki.v,  Secretary; 

with    addresses   by    Dr.    Wii.i.i.Cm    Pi;im'i;u    ami    (Jen.    F.  A. 

Wai.kku.     /'rice  7.')  cents. 
No.  5.    Three  Papers   Read  at   Third  Annual    Meeting;    "Malthus  and 

Ilicardo."  bv  S.   \.    Paitkn;  "The  Study    of  Statistics,"  by 

D.   II.    Di;wi;v,    and    "Analysis    in    Political     Economy,"  l)y 

W.   W.   Foi.wKi.i,.     Price  7-")  cents. 
No.  5.     An  Honest  Dollar.     P>y  President  E.  I'.enma.mi.v  Andukw.s,  of  Brown 

I'niversit  v.     J'rice  'ii  cent^. 


PUBLICATIONS  OF  THE  AMERICAN  ECONOMIC  ASSOCIATION. 

M      1       m^      ,       VpLUlvlE  V-Bomul,*5:  Unbound.  $4. 

No.  1.    The   Industnr.i  Transition   in   Japan,    lu-   \v.u\un  on,,    I'l,   u 
I'rii'c  :i>l  .lilt.  ■  .... 

No.  2.    Two  Prize  E:says  on  Child-Labor:  I.  Iiv  Wiiham  F.  Wiuun.iinY 

mo:.,  ''«  "-i,  "■    "•"■   ^•'••^V'-^'''- '"■•'■"^'■'■■'■-^'•"■•"'     l'if<">  rents.' 

Nos.  3  and  1    Two  Papers  on  the  Canal  Question,    I.  l!v  KuMrsn  J  ,i  wk.s 

M     K     TT-  *  '■''•  V'-"J'-''  Vr''-";"^^'-  •'  ^'■'■'''  -^-  ^'-  '■  '•■■    /Vi'r'jiiiH.."  • 
No.  5.    History  of  tne  New  York  Property  Tax.    liv  J-hn  ('iiKisn,iMirK 

S(  iiwAi;,  A.  M.,   I'h.  D.     /•/•(. 7- ijl. on.      " 
No.  6.    The   Educational  Value  of  Pclitioal   Eonomy       I'.v    .-pio.n    n 

I'.viTKS,    I'll.  Ii.      I'rirc  7.")  reiitx.  "  -      -  . 

«        ,        ,  ,        VOL.UME  VI.  -Bound,  $5,  Unbound,  $4. 

Nos.  1  and  2 .  Report  Ox  the  Proceedings  of  the  Fourth  Annual  Meetinr  of  the 
American  Economic  Association,    I'rke  i'l.mi. 

No.  3.  I.  Governmsr.t  Forestry  Abroad.  I'.v  (iii-inuD  I'l.vriKiT  I'  The 
Present  Condition  of  the  Forests  on  the  Public  Lands."  IJy 
Kiiw  u:i.  .\.  I'.ou  Ki;-,.  III.  Practicability  of  an  American  Forest 
Administration,     I'.v  I'.,  i:.  Fkunuw.     I'ricc  7')  rent.^ 

Nos,  4  and  5.  Municipal  Ownership  of  Gas  in  the  United  states,  I'.v  Ki.u  wu 
\V.  I'.KMis,  I'll.  I).     Price  $\.im. 

No.  6.    State  Railroad  Commissions,  and  Hov;  they  May  be  Made  Effective 
I'.v  I'KKi'KuiiK- ('.  Ci.AKK,  I'll.  I;.     I'rice  "i  ceiils 
VOLUME  VII.     l!ouiid,$.5;   Unbound,  $4. 

No.  1.    The  Silver  Situation  in  the  United  States.      I'.v  F.  W .  Tm-^^k; 

FI..  I'..,  I'll.  I).        I'nW  ::,  rents.  "  ■     '        - 

Wus.  2  and  3.    Cn  the  Shifting  and  Incidence  :f  Taxation.    15y  Fdwin  R.  a. 

Si:i,ii,M.\\,  of  ( 'dluinlii:!  < 'ii|l('._f(..     /■"/■/'•f  .*].iiii, 
ffo.  4  and  5.    Sinking  Funds.     By  Ki.waki.  .\.  Ko^.s,  I'i,.  ii.     /'/•/,■,.  *^i.oo. 
No.  (3.    The  Reciprocity  Treaty  with  Canada  of  lS5i.     I'.v  F.  F.  IlAv.sKsi 

I'll.  I).      I'rirc  :,")  rmts. 

VOLUME  VIII. -Bound.  H.t.  Unbound.  4. 

No.  1.    Report  of  the  Proceedings  of  the  Fifth  Annual  Meeting  of  the  Ameri- 
can Economic  Association,     /''■/'•('  7;'!  renifi. 
Nos,  2  and  3.    The  Housing  of  the  Poor  in  American  Cities.     I'.v  >F\ki  r.-  T, 

llr.vsdi.i.s,  I'll    i;.,   M.  A.      I'nr,    f^l.lili. 

Nos.  i  and  5.    Public  Assistance  of  the  Poor  in  France.     I'.v  ]-:.mii.v  i.iitr.KNE 

r.AMii,  A.  !;.    /'//■•-  si.dd, 
17o.  6,    The  First  Scages  cf  the  Tariff  Policy  of  the  United  States,      I?v 

\Vl  I.I.I  AM     I  I  III..    .\.   ■>!.       /'/■/'•(   J.  I. til  I. 

VOLUME  IX.    aubscriplion  $4. 

Nos,  1  and  2.  Progressive  Taxation  in  Theory  and  Practice.  I'.y  lunwN 
i;.  .\.  .<i:i. K.MAN,  I'h.M.  I'rirr  r<].i)(\  \  cluth-lioiuul  I'dilion 
oT  tlii.s  inonii^'raiili   'i''^  'i'^"  '"'di  l>iil)lislieil.     Pn're  ^\.'){i. 

No.  3,    The  Theory  of  Trarsportation.     F.v  Cuaki.ic.^  H.  {'<h,i,i:\.     I'nW  7.") 

No.  4.    Sir  William  Petty,    A  Study  in  English  Economic  Literature.     Fv 

WllSnN    l.lnVl)    Fl\AS-,    M.   A.,    I'll.    1 1.       I'riril'ir.-nh. 

Nos.  5  and  6,  Papers  Read  at  the  Seventh  Annual  Meeting.  "Tlic  Moileni 
.\  |.)icm1  to  FclmI  I'nriesin  lu-iiiioniic  Fil'i^  "  1 1'rosideiit'>  annual 
aililrc.-s),  l.y  .loii.v  I>.  ('i,.m:k.  I'h,  1>.:  "Tlie  Cliii  .iiro  Stiiko," 
liv  ('.i.iiiMi.L  F).  \Vi:ii.in.  \A,.  I).;  'Tiic  rni'iii|iloyoi!,''  hy 
I)  wi^  1!.  i>Ku  i;v,  I'll.  I>. ;  "  Fopulatioii  ami  (  .•i|>ilal,"  l.y  .\i:riir!: 
T,  IIaim.kv,  M.  .\.;  "Tlu'  l'c)iie  and  liie  l^ncycliial  on  Fa'ooi,'' 
liy  ,TiiiiS  (tijAii  AM  Biioi)K>.  I'rit  .■^'.liit. 
A'OLUME  X.     Sub.SL'iJptioii  $4 

Ncs.  1.  2  and  3.  The  Canadian  Banking  System.  1S17-1S0C.  F\v  K.  M. 
i;i;i;iKr.M;iii.ir.    I'h.  I>.      /'//.v."  .*]..".ii. 

The  As.'^oriation  will  [.nlili.sh  at  least  six  niimiicrs  annually.  .\iiy 
person  may  heroine  an  annual  niciuher  for  ir'3,  or  a  life-nieiiihev  h<v  j-'in. 
Suhseri|>tion.  >A  per  voluine. 

Meiiiliers  are  all'Weil  dealers'  'li.seouiit  on  ha('k  nunihers. 

F'or  uitnera!    nrorniatioM  rei^Mi'diiiL'  nietuhershiii,  etc.,  aihlress 

SkcIIKIWUV    .VmICUHAN    ]\C()N0.MIC    A.-iSn(  lA'lli.i.N, 

'  nni.ll   VhivnxUii.   lUittr.t.  \.  V. 

All  orders  and  ilKHlirle^  for  nionoLM-apiis  and  suhscii|itioiis  sliou'd  he 
addre.ssed  t'.  the  ouhlisiiers. 

MACMTLLAX  .^-  CO. 

C,(\  Fii  rii  .\\::m  I  ,  Ni;^^     \:>K\i. 


